Last year was one of the most difficult years to be invested in mining shares. Investors watched on in horror as the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) Index dropped a massive 28%, as falling energy prices pushed some miners to the brink of collapse.
Luckily for miners and their investors 2016 has been far better, thanks largely to a rebound in energy prices. As we rapidly approach the halfway point, the resources index is up by 9.5% year-to-date. This unsurprisingly makes it the one of the best performing areas of the market this year.
Three companies in particular have stood out for me. Each has rewarded their respective shareholders with a 100%+ gain for their patience.
Galaxy Resources Limited (ASX: GXY)
What a year 2016 has been for shareholders of lithium miner Galaxy Resources. Its share price has skyrocketed an incredible 321% since January 1 on the back of the expected increase in demand for lithium. As lithium is used in lithium-ion batteries, demand is expected to be insatiable as electric vehicles and energy-storage systems gain in popularity. Deutsche Bank expects global battery consumption to increase dramatically over the next decade, with demand increasing from 181,000 tonnes of lithium carbonate in 2015, to 535,000 tonnes by 2025. In my opinion, Galaxy Resources is one of the best-positioned miners to benefit from this boom. Its plans to merge with General Mining Corp Ltd (ASX: GMM) should further increase its prospects by creating a diversified lithium operation with a solid portfolio of lithium assets.
Mineral Resources Limited (ASX: MIN)
The share price of Mineral Resources has climbed by 112% year-to-date, reversing all of last year’s declines. The part miner, part mining services contractor’s diverse operations appear to be key to its strong performance. Although in its interim results the company saw its revenue drop by 23% to $577 million, its bottom line dropped by just 5% to a profit of $48 million. Based on an average iron ore price of $US42 a tonne, management says it expects full year EBITDA to come in between $250 million and $290 million. Considering the rise in iron ore prices since this guidance was offered in February, I would not be surprised to see the company deliver full year EBITDA at the high end of its guidance.
Resolute Mining Limited (ASX: RSG)
Gold miner Resolute has easily been one of the best-performing shares on the ASX in 2016, putting on a gain of 278% for shareholders. In its half-year results the company reported a 19% increase in revenue to $248 million and net profit after tax of $107 million. A vast improvement from the $320 million loss in the same period the previous year. Three factors helped the company achieve this return: increasing total output, lowering production costs, and rising gold prices. Better yet, continuous improvement and cost reduction programs led management to lower the all-in-sustaining costs guidance for the full year. If the gold price holds firm at this level then I expect Resolute could produce bumper full year earnings.
I believe that all three companies could be good investments even after their strong gains so far in 2016. But they are of course reliant on commodity prices remaining at favourable levels. Any significant drop in their respective commodity prices could have a huge effect on the profitability of their businesses and ultimately the performance of their share prices.
Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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