Higher oil prices wont helpGulf Keystone Petroleum (LSE: GKP), while a takeover is less likely than a cash call.Similarly, Sirius Minerals (LSE: SXX) another high-risk profile investment may deliver less earnings for the same amount of stock for a few quarters.
On the face of it,Rare Earth Mineralscould be the most appealing investment of the three, but I would be very cautious before taking any meaningful exposure.
Whats Next?
Brent hit the highest level for the year on Wednesday, so you may thinkI am going to tell you thatGulf Keystone Petroleum is a play on rising oil prices well, it is not.Oil exports from Kurdistan, where its most profitable assets are based, dont turn into cash but are uncollected credits.Whether the cash will ever make it to the bank is highly uncertain, and is going to weigh on its bottom line and its valuation until a solution is found.
The stock is down 40% year to date, and is flat in the last four weeks of trading its only a whisker away from its 52-week low. Is that an opportunity, though?
IfGulf Keystone Petroleum clearly states its strategy, maybe threatening asset sales to seek fortunes elsewhere management has proven to be really good in running the operations then it may be worth a bet, a banking source told me today.
That works on paper but not inKurdistan, Id argue.
The problem is not only thatGulf Keystone Petroleum is finding it hard tocollect its credits counterparty risk is almost prohibitive where it operates. In fact, even if its paid, it may continue to press ahead at full steam, but to do that, it will likely have to ask support from its shareholders.
One caveat is that its debt load doesnt offer room for error.Small tranches of fresh equity may be needed, and that would continue to push down the stock, which is currently overvalued by about 76%based on its liquidation value.
Sirius Minerals & Rare Earth Minerals: Casino Stocks?
I have paid attention toSirius Minerals and Rare Earth Minerals for some time now and its highly unlikely, in my opinion, that either company will make it through the next three years without asking the backing of their shareholders at least once a year but should shareholders commit additional fund to help them reach their goals?
Sirius stock could be highly volatile even at the best of times, but could also deliver terrific returns, as its recent performance shows.In short, its all about expectations based on itsYork Potash project study, for which planning permission is pending. If it gets the green light, then the problem will be how to fund such a huge potash development, but it would be a very nice problem to have.
Sirius is not one investment for me, Im afraid, but you may want to consider minimal exposure to it if you are a risk taker.
Expectations and appealing prospects for the sector and its end markets are what you must bet on if youare considering to buyRare Earth Minerals,which is a very riskybet, too but one that may beworth taking right now if you are looking to make a fast buck. Its incredibly hard to say, however, whetherRare Earth Minerals could actually offer long-term value.
That’s the reason why stocks such as those of Sirius Minerals & Rare Earth Minerals should be considered only as part of a properly diversified portfolio — such as the one comprising the value stocks that have beenselected by our team of analysts.
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Alessandro Pasetti 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.