Full steam ahead for these 3 resources companies

Volumes are up. Commodity prices remain a challenge

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 25, 2012 11:49 am AEST

Australia's third largest pure oil and gas company (behind Woodside Petroleum and Santos), Oil Search Limited (ASX: OSH) has reported a 7.4% increase in first half sales to US$398.5m over last year, despite falling crude oil prices. The oil and gas producer also reconfirmed its guidance to produce between 6.2 million barrels of oil equivalent (mmboe) and 6.7 mmboe for the full year to December 2012. The company operates all of Papua New Guinea's (PNG) currently producing oil and gas fields.

Oil Search has 29% in a joint venture which is developing a Liquified Natural Gas (LNG) plant in PNG, expected to cost around US$15.7 billion, which is expected to deliver its first gas in 2014. Over its 30-year life, the PNG LNG project is expected to produce more than 9 trillion cubic feet of gas and more than 200 million barrels of associated liquids. Expectations from investors are high, with the company trading on a P/E ratio of over 44.

Mirabela Nickel Limited (ASX: MBN) announced that second quarter production of nickel concentrate rose 15% over the previous quarter, and remained on track to meet its full year production forecast. The company expects to produce around 19,000 tonnes of nickel in concentrate for 2012.

Despite the good news, investors have shrugged off the results, and shares are down more than 5% in morning trade to 23.7 cents, and down 87% since July 2011. In May, the company was forced to raise $120 million in new equity to shore up its balance sheet, following a sliding nickel price. According to the Australian Financial Review, the nickel price is just a few cents above the company's production price. Further falls in the nickel price would obviously have serious consequences for the viability of the company.

Atlas Iron Limited (ASX: AGO) is Australia's fourth largest iron ore miner, with low production costs and big expansion plans. The company estimates it costs less than A$50 to produce a tonne of iron ore, which gives it a healthy margin at the current iron ore price of around US$130 a tonne, and a decent buffer should the price fall further. In the last quarter, cash costs were around $42 per tonne.

Atlas shipped 5.6 million tonnes of ore in the 2012 financial year, and plans to double that to 12 million tonnes per annum (Mtpa) by December 2013. With more than 1 billion tonnes of estimated iron ore reserves, the company could be producing iron ore for many, many years. The current issue for Atlas is the expansion requires rail and port facility investment, and the company is looking at an independent railway in conjunction with QR National Limited (ASX: QRN).

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.