Coloured gems

Shares in Gemfields (LSE: GEM) picked up a modest 2% this morning, to 46p, in response to full-year results. The miner of coloured gemstones, mainly emeralds from its Kagem mine in Zambia and rubies from Montepuez in Mozambique, reported a 12.7% rise in revenue to $193.1m, with EBITDA up 7.8% to $69.4m and profit after tax up 91% to $23.5m. Cash stood at $41.5m, up from $28m a year previously, with the company’s inventory apparently worth $107.2m.

Chief executive Ian Harebottle spoke of increasing consumer demand and steadily rising price for its rough gemstones, and told us that

“…to meet the rising demand for coloured gemstones, the company secured financing in the year to realise its expansion programme which will see higher production at both the Kagem and Montepuez operations over the next three years“.

Forecasts for earnings growth are in line with those expectations.

There’s a PEG ratio of 0.8% on the cards for the year to June 2017, which is attractive as a growth prospect, though investors might be put off a little by a relatively high P/E of 23. But if we exclude the value of cash and inventories from the company’s market cap of a little over £250m, we’d be looking at an effective P/E for the business itself of only around 13.

If Gemfields really is set for a few years of earnings growth, it could be a nice buy right now.

Desirable metal

Over to gold now, and Highland Gold Mining (LSE: HGM) shares are also up 2%, to 138.5p, this time after the release of interim results.

Before I looked at the figures, I was struck by the somewhat low P/E of the shares — a forward multiple of 8 for the full year, dropping to 7.4 on 2017 forecasts, and that’s with dividend yields of 4.1% and 4.7% pencilled in. All-in sustaining production costs of a nicely low $609 per ounce is not a problem, but the company reported net debt of $197.9m (£153m). Even allowing for that, a market cap of £450m still leaves the business on effective P/E multiples of around 11, which still looks reasonably attractive.

With gold production up 6% to 128,671 ounces, revenue for the half rose by 13% to $147.1m, and we saw a 14% rise in EBITDA. Rising gold prices helping push the company’s EBITDA margin up to 54%. There will be a 5p per share interim dividend, which bodes well for the full year with forecasts suggesting only around 5.7p — that could easily be beaten now.

Whether you should buy the shares is a tough question, and I’m really not a lover of the shiny stuff, as its value is really at the whim of market sentiment. But if you do invest in gold shares, and you think the current economic uncertainty is set to continue for a good few years yet (and I’d be with you on that part, at least), then Highland Gold Mining is surely worth a closer look.

The post These two shares could add precious riches to your portfolio appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

However, even in such a situation, Shell remains an appealing play due to its size and scale. In fact, Shell would be likely to benefit from such a situation, since it could likely outlast most of its sector peers and emerge in a stronger position with greater market share when oil eventually recovers.

Furthermore, Shell’s share price growth over the coming years is likely to be much more closely aligned to its progress in integrating the recently-acquired assets of BG. Shell now believes that the synergies from the deal will exceed its initial expectations and this bodes well for the company’s profitability and for its free cash flow.

In fact, Shell plans to deliver free cash flow of between $20bn and $25bn per annum within four years. This compares favourably to the average free cash flow of $12bn per annum over the last three years and should provide the company’s investors with a rapid boost to their incomes. And with Shell yielding 6.7% at the present time, its future as an income stock remains very bright. This could push its shares higher even if interest rates now begin to rise following Brexit.

Rapid earnings growth

Of course, Shell’s size and scale means that its earnings growth rate may not be as high as that of a smaller resources peer. As such, combining it within a portfolio with a stock like Gemfields (LSE: GEM) could be a shrewd move.

Although Gemfields is a fraction of the size of Shell, is far less financially sound and pays no dividend, it’s expected to record a rapid rise in its bottom line next year. In fact, the Africa-focused coloured gemstone specialist is forecast to deliver an increase in earnings of 328% in the next financial year. This rate of growth doesn’t yet appear to have been priced-in by the market, since Gemfields trades on a price-to-earnings growth (PEG) ratio of just 0.1 following its share price fall of 12% since the turn of the year.

Clearly, there’s scope for a downgrade to Gemfields’ outlook and commodity prices will continue to fluctuate. However, with such a wide margin of safety its shares could perform exceptionally well, even if its outlook deteriorates. By pairing it up with a resources major such as Shell, an investor may be providing himself/herself with a degree of protection in case of a challenging period for commodities. Therefore, both Shell and Gemfields could be worth buying for long-term investors.

The post Royal Dutch Shell plc and Gemfields plc: the perfect resources partnership? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In fact, Rare Earth Minerals appears to offer significant long term growth potential. The market for lithium has a bright future and it seems relatively likely that the company will be able to sign more deals to provide the commodity due to the increased use of batteries in electric cars and other products in the years ahead.

However, the deal with Tesla includes challenging performance milestones and, more importantly, may not be all that profitable for Rare Earth Minerals. Certainly, it may improve the company’s profile and show that deals can be done, but there could be disappointment ahead if the deal with Tesla does not pay off. And, with financing still yet to be confirmed and the results of a pre-feasibility study of its Yangibana deposit due out next year, it seems prudent to hold off buying until there is a greater degree of certainty surrounding its medium term prospects.

Similarly, silver mining company Hochschild (LSE: HOCH) may also see its share price come under pressure in the short to medium term. That’s because, while its bottom line is expected to move from loss into profit next year, much of this turnaround appears to already be priced in despite the company’s shares having fallen by 22% since the turn of the year.

In fact, Hochschild now trades at just 68p per share, having been as high as 657p in 2011. But, further falls could lie ahead for the business, since it trades on a forward price to earnings (P/E) ratio of 485. Certainly, its price to book (P/B) ratio of 0.4 indicates that it offers good value for money, but with a lack of profitability in the last two years and further losses due this year, it remains a highly uncertain stock. And, while a turnaround is very achievable, the rewards of this for shareholders appear to be somewhat limited.

One mining stock that does appear to be worth buying right now is Gemfields (LSE: GEM). It has been a star performer in 2015, with its share price rising by 34% since the turn of the year. This is at least partly because of the company returning to profitability in 2014 and being forecast to increase its earnings by 37% in the current year, followed by further growth of 144% next year.

This rate of growth is likely to continue to catalyse investor sentiment – especially since much of the mining sector is undergoing a period of financial decline at the present time. Furthermore, Gemfields continues to offer a relatively wide margin of safety despite its upbeat growth forecasts, with it trading on a price to earnings growth (PEG) ratio of just 0.1. This indicates that further share price gains are very much on the cards.

The post Is Now The Perfect Time To Buy Gemfields PLC, Rare Earth Minerals PLC And Hochschild Mining Plc appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.