This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Digging for Opportunity in Precious Metals, Part 3

However, these non-precious metals credits (typically copper) also dilute the business models of these corporations -- transforming them from true "gold miners" to "diversified miners." In turn, this undermines the valuations of these companies -- as analysts and investors alike reward "pure" producers with higher valuations, if for no other reason than their earnings potential is much easier to assess.

Similar dynamics apply to the smaller producers, the "junior miners." However, a close examination of these dynamics shows us that smaller is better in every case. Resource-scarcity -- in the form of declining grades -- is also a reality for junior miners. But there is a major distinction.

For the reason previously mentioned (along with simple, human greed) large mineral deposits are coveted and developed ahead of smaller deposits. This means the problem with diminishing grades is much more acute with respect to the jumbo-deposits to which the senior producers choose to limit themselves than with smaller gold (and silver) deposits.

Look around, and discriminating investors can find junior miners producing, or ready to go into production, with high-grade mines and even the occasional "bonanza-grade" deposit. High grades translate into both higher profit margins and much less dependence/vulnerability with respect to higher energy prices.

However, "smaller is better" goes well beyond higher grades in the mining industry. As previously mentioned, smaller mines produce a much smaller industrial "footprint" from their mine sites. This directly translates into quicker/easier permitting for these mines to go into production.

It also means less "land claims" issues with aboriginal groups, and generally quicker and more-amicable negotiations where mining operations do impact on such claims. Similarly, a smaller "footprint" means less opposition from environmental organizations/interests.

Smaller mines require significantly less infrastructure to support them. This usually translates into enormous differentials in the capital costs required to go into production. Indeed, declining grades and soaring capital costs are resulting in more and more of the grandiose mega-mines that had been planned by the senior miners being temporarily shelved or even permanently abandoned. Smaller is better.

Whether it's small, vs. large or ETFs vs. stocks, expect these investments to represent wild, roller-coaster rides, which require both steady nerves and a longer-term investment horizon in order to provide the time necessary for the fundamentals of these companies to assert themselves -- irrespective of any/all attempts to suppress their share prices. There is a "pot of gold" at the end of this rainbow.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $111.31 0.00%
FB $92.80 0.00%
GOOG $645.44 0.00%
TSLA $241.46 0.00%
YHOO $30.96 0.00%


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs