These days I generally avoid the resource sector, mostly because high capital expenditure, ongoing costs and dependency on commodity markets mean that the businesses are rarely good. However, in the past I have made money investing in oil and gas: these readily transportable fuels will always be among the most useful.
Beach Energy Limited (ASX: BPT), formerly known as Beach Petroleum, is one of the top long-term performers in the sector. Not including dividends it has returned 805% over 10 years, 114% over five years and 41% in the last year alone.
One of the reasons for this success is that Beach Energy sells oil and natural gas, although the company also has a history of (as yet insignificant) partnerships with geothermal companies such as Geodynamics Limited (ASX: GDY).
However, after a strong run, the Managing Director has been selling shares on the market. The company's profits do tend to be volatile and as a result, I think Beach is quite fairly valued. Though it may retrace in the short term, I think Beach Energy is a hold for a long term investor.
There is never a shortage of uranium bulls ready to hype up stocks like Paladin Energy Ltd. (ASX: PDN). They love to suggest that uranium prices of $90 per pound are just around the corner. It's easy to forget that uranium prices are sitting at $29 per pound. With debt of around double its market capitalisation, Paladin is in danger of going bankrupt. Jim Green, writing for Business Spectator, goes so far as to say that: "Australia's uranium lobby is shameless."
He may have a point. A worker at the Energy Resources of Australia Limited (ASX: ERA) Ranger Mine, recently revealed in Mining Australia that he had experienced "a horrifying degree of physical contact with some very noxious material" and that the mine was "in pretty bad shape, even to my uneducated eye – It was like the mine that time forgot."
BHP Billiton Limited (ASX: BHP) had the sense to disband its uranium division in 2012, and the share price of Paladin went up (briefly) yesterday after the company announced it would put a mine on care and maintenance. Predictions that Japan will boost the uranium price when it restarts reactors ignore the huge build-up of inventory and ongoing opposition to nuclear power. Paladin is a sell.
