Three stock picks for uncertain times 📊

Natural Resources

As stock prices continue to tumble amid global uncertainties fuelled by geopolitical factors, investors are on the hunt for places to store their wealth and diversify their portfolios for future gains and earnings. This is what some analysts call the "real asset" rush.

We continue to look into popular investment opportunities across borders as the economy transforms.

Oil and gas 🌎

EasyUSD: Chevron Corporation (CVX)

Chevron is an American energy company with a global footprint focused on oil; the company also explores various other natural resources and is ranked among the top seven oil and gas producing companies in the world, with operations in more than 180 countries

Despite rising oil prices, Chevron has seen strong growth in earnings as demand rises in the US. Global production was at least 3.06 million barrels a day in oil equivalents (oil and natural gas) during the first quarter of 2022 (Q1 FY22). The US represented 39% of the total production.

Given the high prices of oil equivalents, Chevron’s US businesses reported earnings of $3.23 billion. Notwithstanding a 170 000-barrel decline in oil-equivalent production to 1.88 million barrels a day, the international business earned $3.69 billion during the period. This was an increase from $941 million and $1.409 billion vs the previous comparative period (PCP). Total earnings for the period were $6.3 billion or $3.22 per share; foreign currency affected international business by $92 million between periods, which decreased earnings by $144 million.

Chevron's refinery crude oil input and product sales increased during the period, while international operations reported a loss of $155 million vs earnings of $135 million, mainly influenced by the unfavorable foreign currency environment. The US earnings were $486 million vs a loss of $130 million PCP. The company's US gas production increased by 11% vs PCP to 1.83 billion cubic feet per day. In contrast, output in international businesses remained steady at 6.12 billion cubic feet per day.

The company closed the quarter with a cash balance of $11 billion and $29 billion in debt. Using the company net income of $3.23 per share and the current share price of $174, Chevron has a price-to-earnings ratio of 54x, as of writing.

Outlook

Injecting the CO2 back into the ground, Chevron has one of the world's biggest carbon capture storage (CCS) projects. Located in Australia, the project is expected to commence this year. The CCS will be storing CO2 emissions from the group's production under the ground. This, in return, may enable the company to increase its production outlook, aiding the current high oil prices.

Expanding its renewable and oil portfolio, the company also acquired a renewable energy group and Nestle’s oil-based business with the NextBase brand.

Aside from the current geopolitical factors, actual economic activity driving demand may continue to contribute to rising oil prices, which may also mean greater earnings. This is despite the bear market, influenced by central banks as they try to reduce the amount of money circulating in the global economy.

Adding to the above, as the energy embargo comes into effect against Russia, we may see more strain on the demand side for CO2-emitting minerals that play a vital role in the energy sector, such as oil equivalents.

Login to view Chevron Corporation (CVX) shares

on EasyEquities

Base metals 🗜

EasyAUD: Galileo Mining Ltd (GAL)

Millionaire buying into base metals 👀? Galileo is a base metal exploration company that has various exploration programs in Western Australia. Some of the base metals include cobalt and nickel. The company recently took the market by surprise amid the transforming global economy, with base metals being in the spotlight as they become more scarce. At the same time, demand continues to increase, and threats of cutting Russia off from the global economy pose a threat to many metals.

As of writing, the company share price surged by more than 200% in seven days, from 10 May to $0.78 per share. This comes after the company announced it had discovered "significant" mineralization at its Norseman Project, located in Western Australia, on Wednesday, 11 May 2022. These minerals include palladium, platinum, copper, gold, and nickel.

Following the announcement, one of the company's major shareholders and millionaire, Mark Gareth Creasy, acquired three million shares at 58 cents per share at a total cost of $1.74 million on Friday.

Galileo's total spending on operating, exploration, and financing related activities for the quarter were AU$874 000. The company closed its first quarter with a balance of AU$8.16 million. Shares on the issue were 168 million as of writing.

Outlook

Given the current back and forth motion of "global ping pong games" by different countries, which may affect the supply of various commodities, another important factor to consider is the rise in activism around mining that releases CO2 and other pollution-related matters. Galileo may experience some setbacks during the process as the push for cleaner energy gains momentum. However, it may also act as a hedge given the recent developments of different mineralizations.

Furthermore, the company also noted that, given the targets at its other projects, namely, Jimberlana and Mission Sill, it expects to discover more opportunities for further growth. Adding to this, base metals also play a critical role in the production of renewables.

Login to view Galileo Mining (GAL) shares

on EasyEquities

Copper and nickel 🔌

EasyZAR: Orion Minerals (ORN)

Rising of the fallen 😎 Orion is on the journey to revive one of South Africa's historical mines in the Northern Cape through its Prieska and Okiep copper projects. Notably, Northern Cape historical mines are known to be rich with minerals that include copper, zinc, nickel, and cobalt. The company has studies underway to fast track three of the base metals' production, with copper being among them.

Notwithstanding the current volatile commodity prices, copper, as a contributor to both technology and sustainable development goals, is one of the base metals that continue to catch the eye of institutional investors. Orion recently inked $87million (AU$110 million) in funding for its Prieska projects from two international companies. With the agreement expected to reach an advanced stage by the third quarter of 2022 (Q3 2022), given that the agreement includes a payment in gold and silver, the company will also receive a 10% payment from precious delivered at spot price.

An additional AU$10 million was also available to help fast-track the company's feasibility studies and commencement.

By 31 March 2021, Orion minerals had a cash balance of AU$6 million; the company's market cap was AU$110 million, using the volume-weighted average price (five days) on 5 May 2022 of around AU0.02 (South African and Australian share price) and 4.3 billion shares on issue.

Outlook

With the current advocacy that has gained momentum over the years of transforming South Africa from being a consumer to being an innovator using its natural resources and contributing to the global supply chain, Orion is among the companies aiming to stand in both positions. This, in turn, may also benefit the local community, given the current unemployment rate, which may receive support from the government and large institutional investors.

The deal may further create value for investors during production as the company fills the supply gap of copper, further contributing to the value chain of battery production, through funding for construction and refinery projections. The funding gives Orion a 75% stake in Stratega, a company focused on producing battery metals and metal powders of high ESG standards.

Considered the future oil and gold, copper as a commodity may have been long undervalued. As scarcity widens, the metal may see its value surge, which may position the company in the production stage for better earnings growth. Since Orion is still in the exploration stage, as the company continues to raise more capital through tranche placements, this may result in dilutive events.

Mining with renewable resources while contributing to renewable energy, the company plans to expand the PCZM with more hybrid wind and solar renewable energy facilities. In March 2022, the company said it expected to produce the first copper from its Northern Cape projects within 24 months.

Login to view Orion Minerals (ORN) shares

on EasyEquities

Informed decision

At the current rate that inflation has been moving over the past few months, where we've seen the cost of living rising, companies globally – especially mining – have seen a rise in unions demanding a raise in wages. This may be a contributing factor that may increase labour-related costs during the period. For explorers, an environment with high yields will mean higher prices in lending to accelerate programs and fast-track commercialization of the findings on the different sites.

Since the global economy is on a journey to achieve sustainable development goal 13, which looks at climate-related targets, this may be a contributing factor to the costs related to the transition to renewable and clean energy, while creating opportunities for mining companies within the renewable and clean energy space.
.

.

New to investing

and want to know more about our other stock picks?

Read: Investing in West African gold deposits

Sources – EasyResearch, Orion Minerals, Chevron Corporation, Galileo Mining Ltd, ASX, JSE Sens

Follow Cay-Low Mbedzi

@caylow_SA