Mining Stocks
While sometimes risky, mining stocks can also be strong performers when commodity prices move up. However, due to the volatility of these stocks, Pat McKeough recommends that they only form a modest part of a well-balanced portfolio.
Canadian penny mining stocks are some of the riskiest stocks you can buy. These companies are trying to find mineral deposits that mine at a profit and such a find are exceedingly rare. Because of this, it’s even more important to look for investment quality in penny mines.
For example, we automatically rule out investing in penny mines that promote themselves too aggressively or do so misleadingly. The mine-finding effort is more likely to succeed if the managers focus on finding a mine rather than hyping their stock.
Junior mining stocks are usually smaller companies that typically take on riskier mining projects. However, if a junior mining stock is successful at finding and mining, it can mean huge returns for investors.
No matter what type of mining stocks, or other stocks you invest in, TSI Network recommends following our three-part Successful Investor strategy:
- Invest mainly in well-established, mostly dividend-paying companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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Last week, Barrick Gold (symbol ABX on Toronto) said that its research shows that global gold production has been falling by roughly one million ounces a year since 2000. Barrick is the world’s largest gold-mining company. Moreover, the company says that poorer-quality ore has driven down total global mine supply by roughly 10%. In Canada, the U.S, and Australia, for example, average grades of mined ore have fallen to nearly three grams per tonne. That’s down from roughly 12 grams per tonne in 1950. What’s more, Barrick says that South Africa’s gold output has fallen by about 50% from its peak in 1970.
How to profit from a potential gold shortage
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With commodity prices on an upswing, many investors have turned their attention to companies that produce and explore for minerals. These include Canadian gold stocks, especially in light of gold’s recent rise to over $1,030 U.S. an ounce. (In the current Stock Pickers Digest, we take a close look at a junior gold explorer we’ve recommended in the past. It has a presence in one of the world’s most productive gold-producing regions. What’s more, it’s up 72.2% for us since early this year. Read on for further details.)
Look beyond gold prices when investing in junior exploration firms
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The price of uranium rose steadily from $7.10 U.S. a pound in December 2000 to as high as $138 U.S. a pound in June 2007.
Gold has been attracting investor interest because it recently broke out of the $930 to $960 U.S. range that it had been trading in and climbed over $1,000. The last time gold was over $1,000 was last March. In November, it dropped to $700 as stock-market prices fell sharply.
Many investors see investing in gold as a safe haven
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Gold rose from $300 an ounce at the beginning of this decade to over $1,000 in early 2008. It fell below $700 late last year before rebounding back over $1,000 earlier this year. Today, it trades around $954. We feel that gold will eventually surpass its recent highs. That’s mainly because low interest rates and government spending will spur inflation. Still, investors should use caution when investing in gold, and avoid buying gold directly, or certificates that represent an interest in gold. Unlike stocks, commodity investments like these generate no income. Instead, they come with a continuing cash drain for management, insurance and so on....
As the market has rebounded, more investors have been asking me whether they should invest in junior mines.
My answer is that you should always first ensure that your portfolio is spread out across the five main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities). However, junior mines can play a role in the smaller part of your portfolio that you devote to more aggressive investments.
Resource prices have been on the rise lately, and it’s getting easier for many junior mines to raise funds for exploration and development.
With that in mind, I’ve zeroed in on four junior mines that I think have promise in the latest issue of Stock Pickers Digest. One of these, Baffinland Iron Mines (Toronto symbol BIM), is a good example of a junior mine that is worth considering.
My answer is that you should always first ensure that your portfolio is spread out across the five main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities). However, junior mines can play a role in the smaller part of your portfolio that you devote to more aggressive investments.
Resource prices have been on the rise lately, and it’s getting easier for many junior mines to raise funds for exploration and development.
With that in mind, I’ve zeroed in on four junior mines that I think have promise in the latest issue of Stock Pickers Digest. One of these, Baffinland Iron Mines (Toronto symbol BIM), is a good example of a junior mine that is worth considering.
Five keys to profit in junior mines
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If you are interested in gold investing, we recommend staying away from buying gold bullion, coins (unless you collect them as a hobby) or certificates representing an interest in bullion. Unlike stocks, commodity investments like gold bullion do not generate income. Instead, they come with a continuing cash drain, for management, insurance and so on. However, if you do want to hold bullion as part of your gold investing, then SPDR Gold Shares are a relatively low-cost and liquid way to do it. SPDR Gold Trust, symbol GLD on New York, is an investment trust that aims to reflect the performance of the price of gold bullion, less the trust’s expenses. SPDR’s sole assets are gold bullion, and, from time to time, cash. Expenses for SPDR Gold Shares are 0.4% of assets per year....
Uranium prices peaked at 1979 to $43 U.S. a pound, on fears of production shortages. Many nuclear power plants then began hoarding uranium. However, supply disruptions never materialized. As operators used up their uranium inventories in subsequent years, the price of uranium fell to as low as $7.10 U.S. a pound in December 2000. Prices moved up steadily after that, and got as high as $138 U.S. a pound in June 2007. Uranium prices have since moved down to around $42 U.S. a pound. However, longer term, uranium demand is still likely to grow and push up the value of some uranium stocks.
Uranium consumption will rise with nuclear power
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Gold moved up from $300 an ounce in the early part of this decade to over $1,000 in 2008. It fell to $700 in November 2008 as the stock market bottomed out. Like the stock market, gold has regained some of its losses and now trades at around $900. We feel gold could eventually surpass its recent highs with a corresponding impact on many gold stocks. That’s mainly because investors fear that low interest rates and government stimulus spending will spur inflation. Gold prices, and gold investing, should continue to gain as the credit crisis makes it harder for gold companies to fund new projects and expand production. Regardless of what happens with gold investing in general, speculative and promotional gold stocks will make significant gains from time to time on hopes of a gold discovery. You can say something like that about any sort of speculative or promotional stocks, but most investors who dabble in them still wind up losing money. That’s because it is much easier to launch penny gold stocks than to find a gold mine....
Gold stocks look attractive to many investors in a time of global turmoil in financial markets and stock markets. But our view all along has been that gold stocks are rarely if ever an attractive place to invest, compared to other resource-sector investments like oils and other mines, and there is no compelling reason to put up with the disadvantages of gold stocks today. Some enthusiasts of gold stocks feel it’s a travesty to lump gold in with mere industrial commodities. They put gold in a category of its own. Gold is different from other commodities, of course, due to its scarcity, its special physical characteristics like freedom from tarnishing and malleability, its unique suitability for use as a medium of exchange, and its place in the world’s financial history. But that specialness doesn’t make it an attractive investment. In fact, it detracts from gold’s investment appeal. Because of the strong attachment that gold enthusiasts feel to the metal, they bid up the price of gold stocks out of proportion to the profits those mines are likely to produce....