Mining Stocks Could Be Presenting a Great Opportunity
Something interesting is happening with the precious metal mining stocks. Ignoring them could be a big mistake, especially if an investor is looking for hefty returns.
As bold as this statement may sound, know that mining stocks could reward investors immensely in the coming years. In fact, it wouldn’t be wrong to say that they could be the next millionaire makers.
Advertisement
Why bother looking at the precious metal mining stocks? They are severely undervalued. Some are selling for pennies on the dollar.
Just recently, some interesting news rippled across the mining sector. It was about Barrick Gold Corp (NYSE:ABX), buying Randgold Resources Ltd. (NYSE:GOLD) for $6.5 billion. (Source: “Canada’s Barrick Gold to buy Randgold for $6.5 billion,” Reuters, September 24, 2018.)
Barrick Gold and Randgold combined will be the biggest gold mining company in the world.
What’s so interesting about this acquisition? The price.
At the end of 2017, Randgold Resources had proven and probable reserves of 14 million ounces of gold. These are the ounces that are feasible to mine at the current gold price. (Source: “Reserves And Resources,” Randgold Resources Ltd., last accessed September 25, 2018.)
Just looking at the reserves alone, with a $6.5-billion price tag, Barrick Gold bought each ounce of gold at around $465.00!
Mind you, Randgold also has a solid amount of resources. So the price Barrick Gold paid is much lower.
Why Are Mining Stocks So Attractive?
If you look across the board, this sort of thing is prevailing.
Mining stocks are selling for valuations that are just way too low to ignore.
Here’s the best part; all of this is happening at a time when the fundamentals of the precious metals market suggest that prices could soar immensely.
For instance, in the gold market, thanks to lower prices, production has taken a hit. On the other hand, the demand side remains resilient. This disparity could send gold prices surging in no time.
If there’s a flight to safety all of a sudden, gold prices could jump even more.
Looking at the silver market, the gray precious metal’s outlook is much rosier than gold’s outlook. The silver market has been seeing a deficit between demand and supply for several years now. On top of this, silver production is declining.
In simple words, there’s a perfect storm brewing in favor of bulls in the silver market.
With all this, guess what: If precious metal prices increase, you can bet mining stocks could see a significant upside. They provide leveraged returns to precious metal prices.
What’s Ahead for Mining Stocks?
Providing some perspective…
Between December 2016 and early September 2017, gold prices increased by about 15%. Mining stocks like Kinross Gold Corporation (NYSE:KGC) increased by close to 40%. So, for every one-percent increase in gold prices, KGC stock jumped by 2.67%.
Imagine what happens if the disparity in the gold and silver market starts to matter. We could see precious metal prices soar. What if we see a 20%-30% move to the upside? Mining stocks could soar much more.
I wouldn’t be surprised if a 20% move up in gold prices sends a lot of stocks soaring. We could even see some mining stocks double or more in value.
