Bill Baruch, president and founder of Blue Line Futures, reviews and previews the euro, Japanese yen...
10/07/2005 12:00 am EST
"We expect gold to run toward $500 an ounce by year’s end, and silver will follow," notes Elliott Gue in the excellent weekly trading service, Advantage Bulletin. Here, the advisor looks at four favorite speculative plays in the gold and silver mining sector.
"Apex Silver Mines (SIL AMEX) is sitting on a silver mine. The company hasn't begun mining operations yet, but it's either ordered or procured 80% of the equipment and construction for the San Cristobal open-pit silver and zinc project, which will be operational by the second half of 2007. Apex had come under criticism several years ago for not doing anything with the project, but it became clear that management and major shareholders were waiting for the right time.
"Silver has about doubled since Apex became involved with the project, and management has so far been correct to wait. Why mine silver at $4 an ounce or lower if you can mine it at $7 or $8? We wouldn't be surprised if the price of silver is in the teens by the time the mine becomes operational. The stock would run in advance though, not when operations start. Technically: Apex has generally been very active. The stock has been lagging, but it could make a run for 20 if the sector rally heats up. Buy below 15 for an estimated holding period of three to six months. Set an initial stop at 12.75 and trail the stop higher as the stock rallied.
"You can also look at even more beaten down stocks like Coeur d'Alene Mines (CDE NYSE), but as usual, be aware that more risk accompanies the higher reward potential. The point of concern is that Coeur D' Alene uses its stock like a piggy bank, issuing four secondary offerings in the past two years. When a company sells new stock, it increases the shares in the market and depresses the price. Perhaps that's why the stock is as low as it is. At this point, the name of the game is to buy the laggards in the sector, and CDE certainly fits the bill. Buy below $4.25 for a period of three to six months. Set an initial stock at 3.40; trail the stop higher on rallies.
"Harmony (HMY NYSE) is a major South African miner that's been plagued by currency volatility and aging mines. The company made an unsuccessful bid for another South African miner. The stock has been a big laggard in the gold group; with so much strength in the sector, it's time for the laggards to start running. The currency problem for Harmony stems from the fact that as gold rallied during the past couple of years, the South African currency, the rand, was rallying even more against the US dollar. This caused the rand price of gold to actually decline, while unions demanded higher rand wages.
"All this put a lot of pressure on Harmony, which saw its stock decline from just under 20 to 6. Technically, the rand has weakened as gold has rallied, which is the best-case scenario for Harmony. The stock has completed a major head-and-shoulders bottom and will likely head into the mid-teens. It could go much higher over time, but for now focus on the intermediate term. Below 11 for an estimated holding period of three to six months. Set an initial stop at 9.25; trail stop higher as the stock rallies."
"Compania de Minas (BVN NYSE) is a Peruvian precious metals mining company. The company mines mainly gold and silver. Buenaventura owns a 43% stake in the Yanacocha mine in Peru; the majority stake is owned by mining behemoth Newmont Mining, a testament to the quality of the reserve. Peru is an attractive mining play, as the country has rich reserves of all sorts of metals, base, and precious. Thanks to that geology, Buenaventura has low costs of production, allowing it to remain profitable even at lower metals prices.
"Buenaventura has stopped hedging its production, meaning it'll benefit from the upside in metals prices. This is attractive considering that gold bullion recently broke higher from a major basing formation. Technically, the stock has formed a giant base under 31, a high reached in late 2003. The stock has now moved back up to the top of that base and formed a small consolidation zone. Buy below 32.50. On the daily chart, this consolidation looks like a flag, indicating a move to the upper 30s is imminent. Our holding period is estimated at just a few weeks. In the meantime, set an initial stop at 27.25; trail stop higher as the stock rallies."
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