Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Junior Miners Offering Great Upside

Monday, September 10th, 2012
By for Profit Confidential

Junior Miners Offering Great UpsideGold flew above the $1,700 level last Thursday to $1,712, marking 15 new highs over the past month but still well down from its 52-week high of $1,790 in February. The breakout around $1,625 is positive. There is some resistance at $1,750 and $1,600.

I continue to like gold going forward, given the massive financial distress and possible exit of Greece from the eurozone despite what the European Central Bank has said. And then there’s Spain and the other five eurozone countries that are currently in a recession. he eurozone may also be heading for a recession in the third quarter and Germany by year-end.

Any price weakness should be viewed as an opportunity to accumulate.

I favor precious metal plays and continue to see opportunities here, especially in mining companies and junior gold miners. You want to ignore the fluctuation in gold, silver, and copper prices and understand that these mining companies will continue to mine.

China and India continue to be the world’s top buyers of gold, and this is expected to continue. The Chinese have also been buying mining companies around the world in an effort to increase its reserves. This is a reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground, waiting to be developed and needing a cash-rich partner to get the ore out of the ground.

You can buy the major gold players such as Freeport-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX), and Newmont Mining Corporation (NYSE/NEM), but for the real big gains, you need to own some of the smaller miners.

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If you want to play the small mining companies, there are hundreds of stocks.

I have listed several small mining stocks that look interesting for the speculative trader. Please keep in mind that these stocks are ideas and not recommendations to buy.

Keegan Resources Inc. (AMEX/KGN, TSX/KGN) continues to report positive feasibility results, specifically at its Esaase Project in southwest Ghana. I like this stock as an aggressive small-cap play with above-average price appreciation potential.

Another stock I like is Canada-based Taseko Mines Limited (AMEX/TGB), which mines for copper and gold in Canada. The small-cap has a market cap of $578 million and is profitable with above-average price appreciation potential. Trading at 5.9X its estimated 2013 earnings per share (EPS) of $0.46, I like the value here.

Take a look at small-cap Golden Star Resources Ltd. (AMEX/GSS). The gold company has operating mines in west and southwest Ghana, along with exploration properties in Ghana, Sierra Leone, Burkina Faso, Niger, Cote d’Ivoire (Ivory Coast), and Brazil. Trading at almost 7.0X its 2013 EPS, I like the stock’s valuation and potential for long-term gains.

For gold traders, check out small-cap Nevsun Resources Ltd. (AMEX/NSU), which beat on EPS and revenues in the last two quarters.

For a possible non-precious metals mining company play, take a look at Thompson Creek Metals Company Inc. (NYSE/TC), a miner of molybdenum—a metal used for creating stainless steel and other applications, including the production of rare earth used in electronics.

My advice to you is to buy a mixture of exploration-stage gold mining companies along with small to large producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of large gold producers.

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  • Janusz

    OperationNorthwoods – you are exactly right. Governments bemoce incredibly confiscatory when theirs backs are against the wall, far more than you could ever imagine (just read a little history). They will call it a "Windfall Profits Tax" or something else. No one will object because 99% of the population won't be affected. The fact that envy is a huge unspoken motivator in human relations means that the majority will be cheering the gov't on. Which is why I have warned here that relying on your fellow citizens' "outrage" over unfair gov't tactics is a losing strategy.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles