Mining company Polymetal(LSE: POLY) has announced a 29% increase in gold equivalent production for the third quarter of the year. It's on track to meet guidance for the full year with regard to both production and costs. Could this be the right moment to buy it?
Polymetal's share price has risen by 49% since the start of the year. This has been driven by a rising gold price, which has benefitted from a lack of US interest rate rises. While investors had priced in a small handful of interest rate rises this year, there have been none thus far. This has boosted the price of gold because interest-producing assets have been less appealing versus precious metals. A weaker dollar has also kept gold prices more appealing in currencies other than the US dollar.
However, the gold price could be on the cusp of a more difficult period. A US interest rate rise before the end of the year seems likely and this could push its price downwards. More interest rate rises are on the cards for 2017, since US economic data is showing that the world's largest economy is performing relatively well.
While this would be bad news for Polymetal, its valuation appears to take into account a difficult period for gold. Polymetal currently trades on a price-to-earnings growth (PEG) ratio of just 0.4, which indicates that there's still upside potential even if gold prices come under pressure. And with the company expected to yield 4.7% next year from a dividend covered 2.4 times by profit, it offers excellent growth, income and value potential.
Does diversity count?
Of course, some investors may prefer to spread the risk a little more. Polymetal is focused on a relatively small geographical area and on precious metals plus copper and zinc, while a miner such as BHP Billiton(LSE: BLT) has a much greater amount of diversity. BHP even has an oil division, which means that it's truly a diversified resources company. This reduces its risk profile and could mean that it offers greater stability in terms of its financial and share price performance over the medium term.
Looking ahead, BHP is forecast to rapidly increase its underlying profitability in the current financial year. In fact, its earnings are due to rise by 183% on a per share basis. This puts it on a PEG ratio of just 0.1, which indicates that it offers stunning upward rerating potential. Furthermore, its yield of 2.7% from a dividend covered 1.6 times shows that it remains a relatively sound income play.
As such, buying BHP now appears to be a good move. Certainly, its outlook is dependent on the prices of the commodities it mines/produces. However, its risk/reward ratio indicates that it offers excellent long-term growth potential.
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Peter Stephens owns shares of BHP Billiton. 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.