These two will profit with rising metal prices

BREAKWATER RESOURCES $0.39 (Toronto symbol BWR; SI Rating: Speculative) (416-363-4798; www.breakwater.ca; Shares outstanding: 700.8 million; Market cap: $273.3 million; No dividends paid) is a Canadian-based mining company that mainly produces zinc. Breakwater has mines in Canada, Chile and Honduras.

The company earned $0.01 a share in the three months ended December 31, 2009. A year earlier, it lost $0.12 a share. Breakwater’s cash flow was $0.016 a share in the latest quarter.

Early last year, Breakwater raised $23 million in a share issue. That let the company pay off $16 million of debt that was due immediately. It now holds cash of $41.8 million, and has $8 million of long-term debt.

Zinc is trading around $1.08 U.S. a pound, up 68.8% from $0.64 a year ago, but below its late-2006high of over $2.00.

Breakwater’s shares could rise sharply if zinc prices keep moving up along with an economic recovery. That’s because Breakwater’s cash flow per share rises $0.02 for every $0.10 a pound of zinc rises.

However, a rapid fall in the price of zinc would lower Breakwater’s cash flow just as fast.

The shares trade at just 2.4 times the $0.16 a share that the company is likely to earn this year.

Breakwater is a buy, but for highly aggressive investors only.

AMERIGO RESOURCES $0.85 (Toronto symbol ARG; SI Rating: Speculative) (604-681-2802; www.amerigoresources.com; Shares outstanding: 170.9 million; Market cap: $145.3 million; No dividends paid) has jumped 148.6% over the last year on higher copper and molybdenum prices. Copper is up 73.3% during that period, to $3.47 U.S. a pound. Molybdenum is up 116%, to $17.50 U.S. a pound.

Amerigo processes copper and molybdenum from the waste rock from Chile’s El Teniente, the world’s largest copper mine. The company gets 94% of its revenue by processing copper. The remaining 6% comes from molybdenum.

In the three months ended December 31, 2009, Amerigo’s revenue was $33.9 million. (All figures except share price and market cap in U.S. dollars.) Because of one-time accounting adjustments, year-earlier results are not comparable. The company earned $3.9 million, or $0.03 a share, in the latest quarter. Cash flow was $6.4 million, or $0.05 a share.

Amerigo’s total debt of $21.3 million is a manageable 14.7% of its market cap. It also holds cash of $17.9 million, or $0.10 a share.

An 8.8-magnitude earthquake hit Chile on February 27. As a result, Amerigo lost about seven to 10 days of production. However, its operations have continued uninterrupted since then.

The company’s long-term outlook is bright, and copper and molybdenum prices should continue to benefit from an improving global economy.

Amerigo is a buy, but only for aggressive investors.