Now could be a good time to jump into commodity stocks.
Geopolitical risk is back, which means commodity stocks like oil and gold could benefit from higher volatility—missile strikes in Syria sent the price of oil shooting up to its highest point in four years.
With market volatility returning after the quiet of 2017, investors need to look long and hard at what opportunities are worth the risk—and which should be avoided.
Luckily, there are plenty of potential winners out there—particularly companies invested in ‘under-the-radar’ commodities, like potash, a vital ingredient in agriculture that could become immensely valuable as demand spikes in the coming years.
Gold is ready for a boost as well—prices could surge as much as $100 this year, rising as high as $1450.
With ups and downs keeping investors on their toes, here’s 5 companies worth a look:
#1 Newmont Mining Corp. (NYSE: NEM)
A major gold miner with a $20 billion market cap, Newmont has operations in the U.S., Australia, South America and West Africa.
At a time of market volatility, gold is making a comeback as a defensive play, and Newmont stands to profit from its rise.
Newmont has been a solid performer since 2016, rising slowly on the back of the bull market of 2017, but now it could really take off, thanks to stronger gold prices.
After a period of restructuring, Newmont emerged as one of the few major gold miners with a really positive balance sheet. Analysts expect revenue growth of 2.1 percent in 2018, driven by higher prices.
The company hit some turbulence in April, when it was forced to shut down a mine in Ghana after a mining accident killed six workers. But the mine is now up and running.
With gold prices estimated to rise by over $100, topping out at $1450 in 2018, Newmont should profit handsomely. Now would be an excellent time to take a second look at this gold miner.
#2 Vatic Ventures (TSXV: VCV)
Vatic Ventures is a little company that is hoping for a billion-dollar discovery—and the target of its aim is potash.
Yes, potash! This substance could be one of the most important commodities on earth, since it’s a crucial ingredient to fertilizer production.
Without potash, food production would stall, and many people would go hungry. With the global population set to hit 9.8 billion by 2050, potash demand is sure to rise in the coming years.
The price of potash has firmed up in the last two years, and now it sits around $225 per ton. The price is expected to increase in 2018, and Vatic is hoping to meet Asian demand from its new property in Thailand.
Thailand has what some consider the world’s largest untapped potash reserve—a colossal potential of 908 million tons, worth $206 billion.
Vatic’s property in Thailand could be part of that deposit.
The company has a host of advantages working in its favor. Thailand is close to major centers of potash demand—Southeast Asia, China and India, which all have to import potash from Canada or Russia.
Demand in Southeast Asia is 4.25X local production, requiring huge imports and opening up a big opportunity for domestic potash producers.
Existing nearby Thai potash can be produced relatively cheaply, with deposits sitting only 350 meters below the surface (as opposed to other deposits that can be as much as 1.9 km deep, especially in the West), while cheap labor and excellent infrastructure should allow new players like Vatic to produce any potash they discover at their project at a $60/ton discount—undercutting the competition.
According to the USGA, “Global scarcity is not the issue with potash—transportation costs are.”
And Vatic has that problem solved: its potash exploration property is at the center of the action, close to markets.
The little company with only a $4.7 million market cap is led by a management team with decades of experience in Thai mining.
It’s set to begin drilling exploration of its Thai property in May 2018—which means the prospects of Vatic could change in a big way in a matter of weeks.
#3 Rio Tinto Plc (NYSE: RIO)
This huge mining firm is watching trends in the coal market closely—and made a change to its strategy, bowing out of coal production to focus on other areas.
Rio Tinto sold two major coal properties, Kestrel and Hail Creek, for $4.15 billion. The move has made the company more dependent on iron ore, at a time when prices for coal and coke (crucial in steel manufacturing) are ticking upward.
Rio Tinto is benefiting from tough new sanctions on Russia, which is a major supplier of aluminum through the firm Rusal. With sanctions in place, Russian aluminum will lose its competitive edge, allowing Rio Tinto to swoop in and seize market share.
Rio Tinto produced 3.6 million tons of aluminum in 2017, so it’s the frontrunner to fill the void left by Russian sanctions.
And that’s good news for the stock: Rio Tinto’s shares have been climbing steadily since early April and now sit north of $54.
#4 Barrick Gold Corp. (TSX:ABX)
Here’s another gold miner that could benefit from a spike in gold prices in 2018. But that’s not all Barrick has going for it.
The company also has a lot invested in copper production—and copper is tied closely to global economic growth, since it’s a mineral that’s used in just about everything, from housing construction to hardware manufacturing.
Barrick’s dual nature as both a gold miner and a copper company means it can weather the storm when markets turn down (and gold prices pop up): during the last recession, Barrick sustained only a 15 percent loss, compared to the 35 percent decline suffered by the S&P’s 500 index.
The company announced Q1 figures on gold production: 1.05 million ounces produced and 1.07 million ounces sold, as well as 85 million pounds of copper.
While mining stocks have taken a hit in the last three months, falling about 10 percent overall, Barrick is set for a rebound thanks to surging gold prices.
That means the low price now is an opportunity, rather than a demerit: investors can scoop up Barrick for less, before the price rebounds.
#5 Compass Minerals (NYSE: CMP)
Here’s another potash producer worth a look—Compass Minerals, a producer of salt, magnesium chloride, potash and other plant nutrition products.
A major supplier of deicing salts, Compass enjoyed high Q1 earnings thanks to harsh winter conditions throughout North America. The company delivered 4.3 million tons of deicing salt, a boost of 22 percent from 2017.
The company’s plant minerals operations are focused in South America, particularly Brazil. Compass achieved success in its Brazilian operation, where its innovation center pioneered holistic methods for improving crop yields. It now wants to replicate that success in North America, and plans to open up a second innovation center.
Compass attracted some positive investor attention in late 2017: Meadow Creek Investment Management LLC, Ladenburg Thalmann Financial Services Inc. and several other VC firms increased their stakes in Compass at the end of Q4.
While the company’s stock took a tumble at the beginning of the year, falling from $75 to $60, high demand for salts and plant nutrition products like potash should allow it to recover its position, and then some.
So, like Barrick, the price won’t stay down for long. Investors could take advantage of the lull to buy up as much Compass as possible.
Honorable Mentions:
Alexco Resource Corp (TSX:AXR) operates on two sides of the mining spectrum. Its mining business operates in the Keno Hill Silver District in Canada’s Yukon Territory, historically one of the highest-grade silver districts in the world, having produced over 214 million ounces of silver. Alexco is a focused and driven company with proven exploration, development, and operational skills.
On the other end, Alexco also operates Alexco Environmental Group, an environmental consultation business offering remediation solutions and project management, assisting businesses with environmental permitting and compliance issues.
Alexco is tried and true company with years of experience, and an entire asset portfolio located in one country, Canada.
Orocobre (TSX:ORL) has had some serious problems and its stocks have seen major extremes. Right now, it’s really low and has earned the title of one of the most-shorted stocks in this space because of production delays and even a gross spreadsheet error. But the company still must be viewed as the first brine concentrate lithium project in 20 years, and a new catalyst may end up being the ability to self-fund the expansion of its Olaroz lithium hydroxide plant in Japan.
Right now, Orocobre is on a rampage. The TSX traded stock has risen 25% in three months, with no signs of slowing. The company has just announced big news and could be a potential target for takeover.
Centerra Gold (TSX:CG): This big mid-tier gold Canadian miner realized a very competitive cost per ounce in 2016 and expects to cut costs even further in 2017. Its Kyrgyzstan operation yielded a very strong result in 2016. Next to gold, Centerra’s copper production is worth noting as prices for this metal just leapt to two-year highs, providing a nice extra income for Centerra this year.
With new deals in the making, Centerra Gold stands to continue to be a force in the Canadian stock market, and a fair bet for investors.
Royal Nickel Corporation (TSX:RNX): While investor attention is about to refocus on zinc, it’s possible that nickel is being overlooked, and while this stock has been a recent top decliner, if nickel demand growth is overlooked, RNC could be a good stock to hold.
RNC's principal assets are the producing Beta Hunt gold and nickel mine in Western Australia, the Dumont Nickel Project located in the established Abitibi mining camp in Quebec and a 30% stake in the producing Reed copper-gold mine in the Flin Flon-Snow Lake region of Manitoba, Canada.
RNC’s stock price has lagged since July, but a recent uptick in nickel prices could revive this stock once again.
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Forward-Looking Statements
This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that the Thailand potash resource will prove as large and as high grade as hoped; that the potash reserves can be mined; that Vatic will have sufficient funds to develop the potash fields to the point of profitability; that the price for potash will rise; that the Thai project will be able to produce potash as currently scheduled; that Vatic’s potash will enjoy lower costs to market; that Vatic’s exploration and operating costs will be lower than other potash projects; that the potash when produced by Vatic will be high quality suitable for standard use; and that Vatic will be able to carry out its business plans. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that Vatic may not get Thai approval for its mining, production and sale/export of potash; Vatic may not be able to pay the costs of development; aspects or all of the property’s development may not be successful, production of potash may not be cost effective as expected; there is substantial political risk in Thailand, which have the potential of harming production and assets or having assets expropriated; Vatic may not raise sufficient funds to carry out its plans, changing costs for extraction and processing; increased capital costs; the timing and content of upcoming work programs; geological interpretations and technological results based on current data that may change with more detailed information or testing; potential process methods and resource recoveries assumptions based on limited test work with further test work may not be viable; world potash prices may drop; the availability of labour, equipment and markets for the products produced; and despite the current expected viability of its projects, that the potash reserves are not proven or cannot be economically produced on its properties, or that the required permits to build and operate the envisaged facilities cannot be obtained. Currently, Vatic has no revenues. The forward-looking information contained herein is given as of the date hereof and the Company assumes no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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