Why Gold Mining’s Still a Great Place to Make Money
Commodities / Gold & Silver Stocks Aug 24, 2012 - 05:47 AM GMT
Gold has shown some good support and buying after previously declining to below $1,525 an ounce. The metal has rallied above $1,600 and is currently showing some promise, being on the verge of a possible breakout towards $1,700.
I continue to like gold going forward, given the massive financial distress and possible exit of Greece from the eurozone, despite recent statements from the European Central Bank and its desire to keep the eurozone intact. And then there is Spain and the other five eurozone countries currently in a recession.
Even if the yellow metal fails to hold at $1,600, I do not feel it is time to dump gold stocks and believe major price weakness should be viewed as an opportunity to accumulate.
I favor metal plays and continue to see opportunities, especially in the mining companies and junior gold miners. You want to ignore the daily fluctuation in gold, silver, and copper prices, understanding that these mining companies will continue to mine.
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), or 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.
Below, 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. (AMEX/KGN, 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.
Another I like is Canada-based Taseko Mines Limited (AMEX/TGB, NYSE/TGB), which mines for copper and gold in Canada. The small-cap has a market-cap of $514 million and is profitable with above-average price appreciation potential. Trading at 5.9X its estimated 2013 earnings per share (EPS) of $0.46, I like the value here.
Take a look at small-cap Golden Star Resources, Ltd. (AMEX/GSS, NYSE/GSS). This 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 6.0X 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, NYSE/NSU), which beat on EPS and revenues in the last two quarters.
For a non-precious mining company, 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 large gold producers.
By George Leong, BA, B.Comm.
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