Mining for Riches with Junior Miners
Friday, January 4th, 2013
By George Leong, B.Comm. for Profit Confidential
Gold and silver are currently taking a breather on the charts, but if the global risk holds, I wouldn’t be surprised to see a rally in the precious metals this year.
I can see gold breaking to $1,800 an ounce, something that nearly materialized on October 5, 2012, when the price of cash gold traded at $1,795.78 prior to slipping. In fact, the previous time the precious metal was trading above $1,800 was on November 8, 2011. We could see a move above, given the eurozone mess, U.S. debt and fiscal cliff, and the mixed results in China.
Silver is holding at around $30.00 an ounce, but I’m not as bullish on the white metal, as the price is largely driven by the direction of the global economy.
I continue to like gold going forward, given the financial crisis in the eurozone; trust me, it is not going to get better anytime soon…it could even take years. Moreover, with a recession holding in the eurozone, the crisis could deepen and impact the global economy.
Across the Pacific, there are some encouraging signs in China; but prolonged weakness in the eurozone and Europe will negatively impact China along with the other Asian countries, like South Korea, Japan, and the smaller emerging Asian markets.
For those of you who took my advice to hold on and accumulate gold on weakness down to $1,600, it has been a nice ride. In my view, major price weakness should be viewed as an opportunity to accumulate the yellow metal in 2013, unless $1,600 can’t hold.
I favor the metal plays and continue to see opportunities, especially in the mining companies and junior gold miners.
China and India continue to be the world’s top buyers of gold, and this is expected to continue. China has 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 really big gains, you need to own some of the smaller miners. (Read more about Newmont; see “Newmont—the ‘Best of Breed’ of All Gold Stocks.”)
If you want to play the small mining companies, there are hundreds of plays.
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. (NYSE/KGN; TSX/KGN) continues to report positive feasibility results, specifically at its Esaase Gold project in southwest Ghana. I like this stock as an aggressive small-cap play with above-average price appreciation potential.
I also like Canada-based Taseko Mines Limited (NYSE/TGB), which mines for copper and gold in Canada. The small-cap has a market-cap of $560 million and is profitable, with above-average price appreciation potential. Trading at 6.8 times (X) its estimated 2013 earnings per share (EPS) of $0.43, I like the value here.
Take a look at small-cap Golden Star Resources Ltd. (NYSE/GSS). The gold company has operating mines in western and southwest Ghana, along with exploration properties in Ghana, Sierra Leone, Burkina Faso, Niger, Cote d’Ivoire, and Brazil. With this stock trading at 5.7X its 2013 EPS, I like the valuation and potential for long-term gains.
For gold traders, check out small-cap Nevsun Resources Ltd. (NYSE/NSU), which beat on Thomson Financial earnings estimates in the last three consecutive quarters.
As far as the non-precious mining companies, 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 the large gold producers.