Mining Stocks—They’re Down, But Not Out

 junior gold minersGold has shown some good support and buying after recently declining below $1,550. The June gold remains extremely bearish on the charts and is searching for oversold buying support at around $1,500 to $1,525. So far we are seeing support emerge on weakness.

I continue to like gold going forward given the possible exit of Greece from the eurozone after the failure to form a coalition government. New elections are set for June 17, but the uncertainty will be an overhang on equities. A number of Spanish banks were also downgraded, as the 10-year bond yield surged towards seven percent, which inevitably is not sustainable for the country given the current weak financial position.

As I discussed in recent commentary, I do not feel it is time to dump gold stocks and I believe that 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 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 consider buying the major gold players such as Freeport-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 necessarily recommendations to buy right now; but just suggestions of the types of stocks you should be looking at.

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 southwest 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 $532 million and is profitable with above-average price appreciation potential. Trading at 5.32X its estimated 2013 earnings per share (EPS) of $0.42, 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 southwest Ghana, along with exploration properties in Ghana, Sierra Leone, Burkina Faso, Niger, Cote d’Ivoire, and Brazil. Trading at 5.13X 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.