Gold prices have bounced back, jumping above $1,350 an ounce; but I contend that the advance will not be sustainable as the metal remains in a bear market.
The problem we are seeing is that the mining sector is under duress, especially the junior miners who are struggling to maintain costs while gold prices and demand decline.
With commodity prices down across the board, Glencore Xstrata Plc wrote down its mining assets by $7.66 billion in the first six months of 2013. The company, which trades on the London stock exchange, attributed the massive writedown to weak commodity prices.
While commodity prices are weak at this juncture, I continue to see some opportunities in the mining companies and junior gold miners.
China has also been buying mining companies around the world in an effort to increase its reserves. This is one reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground, just waiting to be developed but needing a cash-rich partner to get the ore out of the ground.
In fact, it often makes sense to buy a sector when no one else wants to buy it. In this way, you pay lower prices, rather than chasing a sector at a higher point. Gold, silver, and copper are good examples.
In the large-cap metals area, the top players are Freeport-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX, TSX/ABX), and Newmont Mining Corporation (NYSE/NEM). These stocks are close to their 52-week lows and pay a good dividend. The short-term may be volatile, but you know that there’s always a place for these stocks in your portfolio. Yet, if you are looking for higher-risk opportunities, take a look at some of the smaller miners.
Here are some examples of small mining stocks that may be worth a look for the speculator:
Asanko Gold Inc. (TSX/KGN) runs the 210-square-kilometer Esaase Project in southwest Ghana. Asanko is an aggressive small-cap mining stock with high price appreciation potential.
Another beaten-up junior mining stock is Canada-based Taseko Mines Limited (NYSE/TGB, TSX/TKO). The company mines for copper and gold in Canada. Taseko has good growth metrics, makes money, and is an above-average price appreciation play, trading at 8.67X its estimated 2014 earnings per share (EPS) of $0.24.
An excellent junior mining stock with great valuation and growth metrics is Nevsun Resources Ltd. (NYSE/NSU, TSX/NSU). The company is expected to grow its revenues by 129.2% to $625 million and earn $0.55 per diluted share in 2014, according to Thomson Financial. Trading at 6.15X its 2014 EPS, Nevsun has excellent potential.
Finally, if you are looking for an interesting non-precious metal play, a company like Thompson Creek Metals Company Inc. (NYSE/TC, TSX/TCM) may be worth a look. This company mines for molybdenum—a metal used for creating stainless steel and other applications, including the production of rare earth used in electronics.
~ by George Leong, B.Comm.
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