Junior gold and silver stocks
that offer investors a chance
at big price gains
Junior gold and silver stocks
that offer investors a chance
at big price gains
by Ron Nicklas
President and Chief Trader
Pennaluna & Company
We'll focus on the outlook for mining stocks, since our brokerage firm has specialized in U.S. and Canadian mining issues for over 70 years and we're located out here in North Idaho's Coeur d'Alene Mining District.
Please remember this view is based on current conditions in mid-January and subject to change as circumstances change. (For new developments, call us at 800-535-5329, or check our website at www.pennaluna.com)
Gold Stocks
We don't agree with pundits who say "things are different now", that gold is no longer a store of value, and the yellow metal will never again be a precious asset. Thousands of years of human history argue otherwise.
On the other hand, we think gold is in for some rough sledding. It may have trouble getting north of $310 in the near term. In this difficult market, companies with low cash reserves and good properties may be swallowed up by better financed firms -- and some outfits may disappear altogether.
While we're generally cautious on gold stocks at the moment, we think there are some bargains out there. For instance, look at Barrick Gold (NYSE ABX), the bluest of blue chip mining stocks. This attractive, low cost producer has piles of cash to help it ride out the downturn. Within the past two years, it's traded above US$30, but lately has fluctuated between about US$15 and US$19.
Something cheaper? You might look at Gold Reserve (TSE GLR; Nasdaq GLDR) of Spokane. It's trading under US$3.00 right now. Just over a year ago, it would have cost you US$15. Gold Reserve has US$31million cash in the bank, no long-term debt, modest expenses, and extremely promising Venezuelan gold and copper concessions.
Cheaper still is Hanover Gold (Nasdaq SmCp HVGO) of Coeur d'Alene. Managed by seasoned veterans, it controls nearly 800 gold claims -- roughly 22-1/2 square miles -- in Montana's historic Virginia City Mining District, the state's richest gold producing area. Exploration results so far have been impressive, and more exploration is scheduled for this year. Insiders led by N.A. Degerstrom, prominent Spokane mining figure, recently showed their faith when they bought stock in a private placement at prices well above market. Hanover traded as high as US$1.62 in the past year, but has been battered down along with gold to under US$.50 recently.
Silver Stocks
We're bullish on silver. COMEX warehouse inventories have been hovering lately near 12 year lows. Demand has been on an upward trend for several years, as silver finds increasing usage for industrial applications.
Despite the turmoil in Asian economies, fundamentals for the metal still look very strong to us. Moreover, an anticipated drop in gold mine production should significantly cut the by-product silver those operations produce and provide additional price support. We won't be surprised to see silver hit US$7 later this year.
With stronger silver, many silver mining stocks are starting to look better right now. Up in Canada, there's Pan American Silver (Nasdaq PAASF). While not a particularly large producer (about 2.8 million ounces annually, compared, for instance, to the Sunshine Mine's 5 million ounce rate), it's a pure silver play with low production costs and a good portfolio of properties.
Here in our Silver Valley area, the "big three" producers -- Coeur d'Alene Mines (NYSE CDE), Hecla Mining (NYSE HL) and Sunshine Mining (NYSE SSC) -- all look pretty good. Hecla, headquartered here in Coeur d'Alene, especially catches our eye. Despite good leverage to rising silver prices, 7 to 8 million ounces of silver production planned for '98, and a much improved balance sheet, this century-old producer is trading at a shade under US$5.00 right now -- and looks like a bargain.
Meantime, the mining resurgence in North Idaho is continuing. As a result, some of the speculative
Silver Valley junior silvers offer aggressive investors a chance at big price gains.
For instance, 73-year-old Atlas Mining Company (OTCBB ALSM) of Osburn, generated US$690,000 in operating income during the first three months under new management and a new business plan -- and around US$275,000 of that was profit. The firm recently diversified into timber and contract mining (including development work at both the Sunshine and Lucky Friday mines). It owns the Atlas Mine, located above the Atlas Pluton, a deep magmatic intrusion. With only 2.7 million shares out, Atlas is bid at about US$.57.
Plainview Mining Company (OTCBB PLMC) of Kellogg, is continuing with plans to merge via stock swap into New Jersey Mining near the end of this month. The well-regarded father and son mining team of Fred and Grant Brackebush will take the helm of the combined company. We expect them to rev up the energy level of this 70-year-old outfit in very short order.
Independence Lead Mines (OTCBB ILDM) of Wallace, has new management, under five million shares out, and an 18% stake in the rich new Gold Hunter expansion project at Hecla's Lucky Friday Mine -- yet shows only a relatively modest price gain so far. It started the year at US$1.38 and is bid now at about US$1.60.
Silver Buckle Mines (OTCBB SBUM) of Wallace, was cleared just last week for active quotation on the computerized OTC Bulletin Board operated by Nasdaq and is bid now at about US$.15. It has about 12 million shares out, and holds property near the Coeur and Galena mines/Caladay area owned by Silver Valley Resources Corporation -- the private joint venture of ASARCO and Coeur d'Alene Mines. The company signed a mining lease last summer with Silver Valley.
Editor's Note: Pennaluna & Company has specialized in U.S. and Canadian mining stocks for 71 years -- offering discount commissions. All U.S. exchanges, all Canadian exchanges, Nasdaq, OTC Bulletin Board and Canadian Dealer Network. Visit the web site which features mining stock news, company profiles and more. Call 1-800-535-5329 or Fax (208) 664-2283 for a FREE copy of the newsletter, The Pennalunan Prospector.
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