Newsletter Watch: Mining for value in "juniors"
There are numerous risks involved in investing in junior mining companies. They are dependent on the price of metals and investor sentiment toward metals. They may be highly leveraged and each individual miner firm has operating risk, management risk, financial risk and of course, the development risk of finding the metals for which they are mining.
On the other hand, many of these same factors can result in upside opportunity; there are junior mining stocks that do indeed hit "pay dirt."
Given the risks and challenges, it is essential to rely on advisors with proven, long-standing records of expertise in the sector. Such is the case with the three advisors we turn to today: Adrian Day, Brien Lundin and Doug Casey.
"When building a portfolio of junior mining stocks, stick with the best—not just the cheapest," says Adrian Day, in his industry-leading The Global Analyst.
Though he is cautious near term, the money manager and advisor forecasts that gold is still only part way through its current bull move and still likely has years to run.
Day says that if he were to build a gold and resource portfolio today, from scratch, his favorites would be Vista Gold Corp. (AMEX: VGZ), Virginia Mines Inc. (TSE: VGQ) and Allied Nevada Gold Corp. (AMEX: ANV).
"Vista Gold, which has a market cap of $194 million, owns about 0.4 oz of gold per share in the ground, making it cheap on an asset basis. The company has a strong balance sheet and is moving to monetize its assets, including moving forward on production from one advanced property,” Day says. “The business model, with lots of known but high-cost ounces in the ground, gives it good leverage to the gold prices.”
Day says he likes Virginia Mines, which he calls “a successful prospect generator” in Quebec, because the company has cash and a royalty on a gold property it sold last year, and on an asset basis, remains a good value. He says the small cap has over a dozen active projects, with four current drill programs, mostly in joint-venture with others who spend the money to earn into Virginia's projects.
"Allied Nevada, with a market cap of $350 million was formed earlier this year by merging Vista Gold's Nevada properties with a private Nevada exploration package, which together constitute the second largest privately owned land package in Nevada,” Day says. “One former producer is moving back to production; others are in joint ventures. The company has cash and very strong management.”
Brien Lundin, editor of The Gold Newsletter, says, "One of my top ideas is development-stage mining operation Geodex (CVE: GXM). When I first recommended Geodex, I couldn't believe the size of its 'Sisson Brook' tungsten-moly-copper project and the lack of respect accorded it by the market.”
Lundin says now the situation has now grown more acute, with the company's release of a new resource estimate for Zone III of the project in October.
“Consider this: In the new resource calculation, the inferred resources soared from 167 million tonnes to 290 million tones—a 73% increase. The company is about to come out with its initial scoping study for Sisson Brook, so investors can wait for the company's accurate numbers,” he says. “But with the share price of Geodex recently perking up, it seems that more investors are starting to wake up to this project's enormous potential. Those who wait for official confirmation may end up missing some significant profits. Suffice to say that Geodex remains one of my top buys."
Doug Casey, editor of the International Speculator adds, "I would suggest that investors build a portfolio of the better small companies exploring for new deposits—the ones with the best management teams, working on the best projects, in the best geology."
With any eye toward potential takeovers in mining stocks, he says, "Rather then scouring the world themselves, the majors let the more agile and entrepreneurial junior explorers—often Canadian firms, due to the resource orientation of that country's economy—invest the capital and sweat needed to find a new deposit. Then, when a junior company's project seems ripe, the majors compete to buy the deposit or to acquire the junior explorer itself—and they pay up in a most serious way."
Casey says that among individual mining companies, he currently likes Alexco Resource Corp. (TSE: AXR), a Canadian silver play and AuEx Ventures (Vancouver: AUX) a relatively new company with a focus on Nevada.
Casey sasy AuEx Ventures is “run by Ron Parratt, a member of the Explorers' League that while working with major mining companies has led teams responsible for finding over 20 million ounces of gold in that minerally-endowed state."
