Mining for Riches with Junior Miners
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 nearly $1,796 before slipping. In fact, the last time that gold was trading above $1,800 was on November 8, 2011. We could see a move above, given the financial mess in the eurozone, U.S. debt, and China’s mixed economic results.
Silver is holding around $30.00, but I’m not as bullish on the white metal; its 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. And trust me; it’s not going to get better anytime soon. It could take years. Moreover, with a recession holding in the eurozone, this could further deepen the crisis, affecting 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, including South Korea, Japan, and the smaller, emerging Asian economies.
For those of you that 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 gold in 2013, unless $1,600 cannot hold.
I favor the metal plays, and I 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 one 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.
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 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 (AMEX/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 8.5X its estimated 2013 earnings per share (EPS) of $0.43, I like the value here.
You might also want to 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. I like the valuation and potential for long-term gains here.
For gold traders, check out small-cap Nevsun Resources Ltd. (NYSE/NSU; TSX/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.
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