Mining for Value in Metals & Minerals Stocks

Commodities have pulled back as investors temper their worries over rising inflation and interest rates. Several investment advisors, however, remain focused on long-term fundamental trends that support the prospects for metals and minerals. Here, several contributors to MoneyShow.com take a look at their favorite ideas in a range of commodities, including gold, silver, platinum, palladium, and copper. Bruce Kaser, Cabot Undervalued Stocks Advisor Investors seem to have abandoned commodity gold and the shares of gold miners like Barrick Gold . One of the most difficult challenges that investors have with value stocks is to hang onto them when the share price goes down. If the underlying value is there, however, then the day-to-day share price is just a sentiment indicator. This is the case with Barrick today. Fundamentally, Barrick is strong, with a solid balance sheet, capable management and good mines. While there is a risk that some of their mines get nicked by corrupt governments in shaky countries, Barrick has generally been able to keep the financial impact to a minimum. Barrick reported reasonable results recently, helping to support the case that the company is fundamentally solid. And, at just over $16/share, the stock discounts a fairly dour future. Commodity gold has been hit by the strong dollar and rising interest rates. These are two of the drivers of gold prices, and both are moving in the wrong direction (pressuring gold). What we see, though, is that gold has remained remarkably resilient even in the face of these pressures. Any relenting by the Fed on its campaign to rein in inflation would likely push gold substantially higher. This might not happen in the immediate future, but it would appear inevitable despite the Fed's tough talk. With Barrick, we are left with a solid company whose shares are out-of-favor and undervalued. For reference, the last time GOLD traded at this price, commodity gold traded at $1,250/ounce or so. I personally own Barrick shares and am keeping my position and the Buy rating. Patience, however, is required. Stephen Leeb, The Complete Investor UK-based Glencore PLC is arguably the most diversified commodity play in the world; a stake in Glencore gives you a vertically integrated stake in virtually all major commodities through both trading activities and the company's ownership of major mining properties and its direct marketing of the commodities it produces. As the world's largest trading company, the company is a sure beneficiary of the rising value of commodities as well as of increased volatility in commodity markets. One impressive statistic is that company through its trading and marketing activity is responsible for delivery of more than 5% of the world's oil. Glencore has direct stakes in multiple mining projects, including in copper, coal, and cobalt. Its massive asset base virtually ensures gains in market share in trading, as underlying liquidity defines the amount of trading a company can manage. The most important metric in valuing any commodity company is free cash flow yield. For Glencore, that figure currently sits north of 20%, which means huge payouts to shareholders in the form of capital distributions and dividends. The current bargain price is a result of the market taking its time in factoring in the recent settlement related to former management, which had been an overall depressant on the shares. Glencore now is positioned to be one of the strongest beneficiaries of the broad-based gains in commodity prices that lie ahead. Adrian Day, Global Analyst Agnico Eagle reported a very strong quarter, its first full quarter with Kirkland assets. Production rose above estimates while operating costs were down (with cash costs at $726/oz and all-in sustaining costs at $1,026), largely due to increased synergies from the merger with Kirkland as well as currency and fuel hedges. The company had said that their initial estimates on synergies were conservative. Looking ahead for the rest of the year, the company expects continued strong production though also for costs to increase, to the upper end of its previous guidance. Looking further ahead, initial production from Odyssey (Canada's Malartic underground mine) is now scheduled for the first quarter of next year, while the technical update on the Detour Mine in Ontario looks for a 38% increase in reserves and extending the mine life by 10 years. Since March, the company has paid down $250 million in debt, leaving $343 million of debt. Importantly, debt repayments scheduled over the next several years are light, around $100 million each year, which will be very manageable from cash flow. The company now has $2.2 billion of available liquidity. It also initiated its buyback program during the quarter -- although on a very small scale so far. The company has good operations in low-risk regions; continues to execute well; has top, conservative management; a broad management bench; a strong balance sheet; and a deep pipeline. Agnico Eagle is one of our top gold picks. The stock has bounced, but it remains a very strong buy. Altius Minerals (Toronto: ALS) reported Q2 earnings a little short of analyst estimates, having pre-released its attributable royalty revenues, which were a quarterly record, mainly due to higher commodity prices. As previously noted, coal and potash (a record, up 16% quarter on quarter) came in strong, while base metals were soft (down 16% from the prior quarter). Base metals were hurt by the expected closure of the 777 Mine as well as reduced output at Chapada due to unusually heavy rainfalls; these two factors will affect the second-half results as well. The stock dividend was increased again, up one penny to 8 cents, an increase of 60% over the past 12 months. The company does not expect major corporate activity, given high prices for royalties, instead seeing organic growth from existing assets, although there could be some market activity, given current market weakness, including adding to existing positions. The balance sheet is strong with about $28 million cash held directly at Altius as well as equity in its Project Generation unit valued at almost $50 million. It has debt of $122 million, after drawing down further on its revolver for investments. Altius is a core holding for us, providing exposure to a broad range of commodities inside a dynamic company whose management thinks and acts counter-cyclically. Given the move from under $16 a month ago, we would look to increase positions on any weakness. If you do not own, it can be bought here. Peter Krauth, Silver Stock Investor GoGold Resources -- headquartered in Nova Scotia, Canada -- is a rarity among silver stocks. That's because the company is not only cash-flow positive, but it's also got superb growth potential. GGD is a mid-tier silver producer and developer operating in Mexico. Senior management and founders have been involved in a series of successful projects and companies. They bought the Santa Gertrudis project for $11M, invested $9M and sold it to Agnico Eagle just three years later for $95M. They acquired the Ocampo project for $15M, selling it 10 years later for $750M. And they bought the El Cubo mine at $20M and then just two years later got $375M for that asset. This group knows how to uncover and acquire cheap assets, then create value with them, having built 4 mines in Mexico. CEO and President is Brad Langille (Gammon Gold, Mexgold, Nayarit Gold) who developed projects all the way from grass roots to commercial production in Mexico. Anis Nehme, COO (Gammon Gold), has spent a decade in mining, with extensive experience in both open pit and underground. And management has plenty of skin in the game, as insiders own about 20% of shares. Without a doubt, the company's workhorse is the Parral tailings project in Chichuahua, Mexico. But Los Ricos in Jalisco, Mexico is where the upside exists for GoGold. Los Ricos was bought for just $7.1M in 2019 from a private seller. GoGold has a very respectable corporate structure. There's no debt, about $80M in cash after a big raise in March, another $17M in receivables from the Government of Mexico, and an impressive 20% insider ownership. In addition, institutional shareholders include Van Eck, Franklin Templeton, Sprott Asset Management, Blackrock, Merk Investments, and CI Investments. I continue to view GGD as a low-medium risk portfolio holding, since the company remains cash-flow positive and debt free. The upside potential from Los Ricos South and North are the main drivers for growth. Jim Powell, Global Changes & Opportunities The economic slowdown, and worries about a recession, have pushed many recently sizzling commodity prices back to attractive levels. I urge investors to take advantage of the opportunity to purchase leading natural resource and raw material stocks at a discount. I expect today's commodity bargains will disappear very quickly. One of the oldest sayings about commodities on Wall Street is the economy has a copper roof. The phrase credits the central role that copper plays in most of the technology that supports our lives. Houses, cars, TV and radio, telecom systems (telephones and computer networks,), wind and solar arrays, products with electric motors, and dozens of other electrical and electronic devices use large amounts of copper. Without copper, human development would not have even progressed as far as the bronze age. Shares of America's leading copper producer, Freeport-McMoRan were recently down 23.9% this year. The decline almost qualifies the company as a fallen angel. I think FCX is a screaming bargain that should be added to long-term value portfolios. I think a lot more is on the way for this stock. Clif Droke, Cabot SX Gold & Metals Advisor The beleaguered silver market could soon get a big break, based on a recent series of statistics. The data paint a sanguine picture for the industrial metal and suggest higher prices are ahead. Although silver prices are down over 20% from a year ago, recent CFTC Commitments of Traders (COT) reports reveal that commercial hedgers (the so-called smart money in the silver market) are at one of their lowest levels of holding short positions in years. Moreover, the Silver Institute's World Silver Survey 2022 report states that higher mine production (due to project ramp-ups gains in established mines' output), plus higher industrial recycling are expected this year, resulting in a projected 3% increase in global silver supply. As an aside, the Silver Institute notes that the accelerating demand for electronic vehicles (EVs) and autonomous vehicles should serve as a long-term boost for silver demand. Putting all the pieces together, silver's outlook is as positive as it has been in recent memory. Accordingly, I'm moving to add a new position in our favorite silver-tracking ETF, the iShares Silver ETF . Investors who don't mind the volatility risk associated with buying near a major low can purchase a conservative position in SLV. The Sprott Physical Platinum & Palladium Trust is arguably the lowest-cost way to play a potential palladium market short-covering rally. I view this as an asymmetric trading opportunity given the strong short-covering trend among commercial hedgers in the palladium market. Moreover, the white metals should be prime beneficiaries of China's reopening from recent Covid-related shutdowns as industrial activity (particularly in the automotive sector) ramps up again. However, because this ETF is coming off a major low and doesn't enjoy the tailwind of forward momentum, it also represents an above-normal volatility risk. For that reason, I'm not recommending this trade for conservative traders.

Mining for Value in Metals & Minerals Stocks

Six investment advisors discuss their favorite ideas in a range of commodities, including gold, silver, platinum, palladium, and copper.

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