Monday, March 26th, 2012
By George Leong, B.Comm. for Profit Confidential
We are seeing some calm return to the equity markets after Greece managed to convince its debt holders to take a loss of over $200 billion. The aftermath has hurt gold, as the precious metal has hit a snag; it’s down below $1,700 and looking to a possible retest at $1,600. A break below could send the precious metal down to $1,525.
With the current weakness in gold, I do not feel it is time to dump gold stocks and I believe major price weakness should be viewed as an opportunity to accumulate stocks.
I favor the metal plays and continue to smell 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. The Chinese have also been buying mining companies around the world in an effort to increase the country’s 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 Free port-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX), and Newmont Mining Corporation (NYSE/NEM), as I discussed in The Gold Stock at the Top of My List, but for an opportunity for some real big gains, you need to own some of the smaller miners.
If you want to play the small mining companies, there are hundreds of plays.
I have listed several small mining companies below that look interesting for the speculative trader. Note that these are not specific recommendations to buy these stocks at the moment; just a list of promising mining companies to look into.
Small-cap gold miner Jaguar Mining Inc. (NYSE/JAG) is an interesting miner. The stock surged in late 2011 on news of a potential $1.0-billion takeover bid from China-based Shandong Gold Group, but the bid never came to fruition for whatever reasons.
Keegan Resources Inc. (AMEX/KGN, TSX/KGN) continues to report positive feasibility results specifically at its Esaase Project in south west Ghana. I like this stock as an aggressive small-cap play with above-average price appreciation potential.
Another 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 $679 million and is profitable with above-average price appreciation potential. With it trading at 5.78X its estimated 2013 earnings per share (EPS) of $0.60, I like the value here.
Take a look at small-cap Golden Star Resources Ltd. (AMEX/GSS). The gold company has operating mines in western Ghana and south west Ghana, along with exploration properties in Ghana, Sierra Leone, Burkina Faso, Niger, Cote d’Ivoire, and Brazil. With Golden Start trading at 6.65X its 2013 EPS, I like the 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.
Within 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 gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.
|Total 2012 per share earnings for 30 stocks in the Dow Jones Industrial Average:||$900|
|Dow Jones Industrial Average Price/earnings multiple:||16.0|
|Dow Jones Industrial Average Dividend Yield:||2.5%|
|10-year U.S. Treasury Yield:||2.02%|
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