Interesting article in the WSJ today on mining stocks. Given that precious metals prices have been rising the timing may be great for positive PR.
Mining Stocks Take Off Again --- Burned Before, Investors Buy Canadian Exploration Shares
By Mark Heinzl
945 words
6 January 2004
The Wall Street Journal
C14
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
Toronto -- MINING STOCKS seldom grab the limelight, or even register on most investors' radar screens. But with commodity prices strong, mining stocks are on a roll.
Canada's little-followed S&P/TSX Venture exchange index, which lists many shares of small mineral-exploration companies, skyrocketed 63% in 2003, outstripping even the Nasdaq Composite Index's 50% surge.
Mining stocks on larger exchanges soared, too. Shares of big Canadian nickel miner Inco Ltd., for example, have more than doubled, and shares of global mining concern BHP Billiton Ltd. have nearly doubled from their lows of last spring, both on the New York Stock Exchange.
Asian demand and low inventories, combined with geopolitical tensions and the slumping U.S. dollar, have contributed to rising metal prices over the past year. Just yesterday, Saskatoon, Saskatchewan, uranium miner Cameco Corp. said it is taking advantage of strong gold prices by planning an initial public offering of shares in its gold-mining assets, including a major gold mine in the Kyrgyz Republic and another gold mine in Mongolia. Cameco shares have nearly doubled over the past year amid strong uranium prices.
The factors underpinning metal prices and the shares of major mining companies remain in place, making investors optimistic even after a year of remarkable gains.
But the optimism is taking investors deeper into more-speculative areas. The big activity is now among small mineral-exploration stocks, mostly Canadian and Australian. Some of these companies, typically burning through prodigious amounts of cash as they search for a mineral find, have seen their share prices soar many times over on speculation the companies will find buried riches in remote corners of the globe.
Shares in Ivanhoe Mines Ltd. on the Toronto Stock Exchange, for example, have more than tripled to 10.90 Canadian dollars (US$8.46) from about C$3 in just a few months, giving Ivanhoe a market capitalization of about C$2.7 billion, even though the company has reported nothing but losses from its existing mines for years.
Investing in mineral-exploration stocks is risky business. For every one that soars, many others wilt or even disappear. And the recent rally in exploration stocks means many now have lofty valuations, amplifying the usual risk surrounding this sector. Exploration companies typically have little or no revenue and chew up cash quickly while hunting for a mineral deposit and turning it into a profit-producing mine. The British Columbia Securities Commission recently warned mining companies to "pay close attention to their disclosure requirements and address shortcomings as quickly as possible" or risk regulatory actions.
Mineral-exploration stocks sputtered along for years after the implosion in 1997 of Bre-X Minerals, the Canadian company that claimed a giant find in the Indonesian jungle. Its shares were once valued at billions, but became worthless when its find was exposed as a fraud.
Now, however, investors are once again willing to gamble on the sector.
Take Southwestern Resources Corp. Shares of the Vancouver, British Columbia, mineral-exploration concern have catapulted to C$42.60 on the Toronto Stock Exchange over the past year after ranging between about C$2 and C$6 over most of the previous five years. Investors are excited about the company's drilling results showing gold mineralization at a property in southern China. And Southwestern got a big boost when Denver gold-mining giant Newmont Mining Corp. in October agreed to take a 2% stake in the company and form a joint venture for exploration of Southwestern's silver and gold property in Peru.
Past mining booms have featured big discoveries in remote parts of Canada, South America and Africa. This time Mongolia seems the place to be. Shares of QGX Ltd., a Canadian company searching for gold and other metals in the rugged country north of China have rocketed to C$6.45 from about C$1 on the TSX Venture exchange over the past few months. The shares got a boost after big Toronto gold producer Barrick Gold Corp. recently took a 9.5% stake in the company at C$4 a share.
