Recentyears have been disastrous for commodity stocks, withthe Chinese-fuelled supercycle punctured and global growth running out of road. But not all miners were created equal. Here are three commodity stocks with very different prospects right now.
One month ago, I declared FTSE 100 giantBHP Billiton (LSE: BLT) a full-blown mining disaster. It is down another 20% since then, as its props continue to collapse. Over five years is share priceis down 60%, and investors who have hung onhoping to recoup their losses have been buried. Right now there seems no end to the misery. Especially withInternational FC Stone analyst Ed Meir telling Bloomberg that the outlook for King Copper is grim-t0-bleak and miners need to start slashing supply as Chinese demand continues to plummet.
Iron ore facesthe same dynamic, as supply rises while demand plummets. The price has fallen from $180 a tonne four years ago to around $50 today. Next year consensus suggests that will fall to $45. A stronger dollar wont help details, if the US does hike rates next month.
Management has been responding in the same way as every other troubled oil and commodity producer: slashing costs and shelving investment, while maintaining supply to keep the cash flowing. There is only one thing left to slash now: the dividend, which currently yields a crazily fragile9.22%. How long until that comescrashing down?
Something More Earthy
AIM-listedRare Earth Minerals(LSE: REM) is also down sharply over the last month, falling 15% from 0.94p to 0.80p. This is more down to a lack of news, rather than bad news. There has been little to inspire investors since itseye-catching deal to supply Tesla Motors withlithium hydroxide from itsSonora field in Mexico, alongside partner Bacanora Minerals.
REM is now focusing on hittingTeslastough two-year performance milestones. If it makes it, investors could hit pay dirt. The recent share price drop could make a decent entry point. Effectively, you are buying blind.
Sirius Minerals(LSE: SXX) is another stock in limbo at the moment. TheAIM-listed potash miner has clattered overmost of the hurdles that lay in the way ofwinning full approval forits North York Moors potash project, where it hopes to digthe planetslargest polyhalite mine. But it has a long way to go before it can hit its target of producing 13m tonnes of the fertiliser per year.
Siriusneeds to raise as much as 2bn to drive the project forward, a tall order as investors shy away from the commodity sector. But again, this isnt a metals miner, demand for food is rising and Sirius has already secured polyhalite supply agreements with major agri-business customers.Today it trades at around 18p. Liberum Capital has just set a target price of 38p, suggesting potential upside of around 110p, which is certainly food for thought.
All three commodity stocks come laden with uncertaintybut I thinkfuture prospects at REM and SXX hold out more hope thanBHP Billitons troubled recent past.
Each of these three stocks is a bit of a punt but sometimes you have to take a little risk to make money on the stock market.
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Harvey Jones 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.