https://www.kitco.com/ind/Resopp/aug112011.html
Aug 11 2011 3:29PM
Bargain Hunting
Shares of metal companies do not yet reflect the big gains in metal prices
The unprecedented level of uncertainty in Europe and in America has led to big gains in the prices of gold and silver. However, those gains in the bullion prices have not yet been reflected in share prices of gold and silver companies. Over the past few months, investors have sought a safe haven in the form of bullion. While precious metal prices are higher, the companies in the sector have seen declines in price – a very unusual situation.
Almost certainly, the American debt situation and the European situation will see some near-term resolution. However, it is most likely that investors will remain wary and therefore the gold price will continue to show strength.
The summer is usually a quiet period for companies in the mining sector and that has added to the downtrend in the share prices.
Before long, investors will recognize the anomaly between bullion prices and share prices. Firstly, companies that are producing precious metals are generating substantial amounts of cash flow. Secondly, and perhaps more importantly, the large producers have generated large amounts of cash and are seeking to expand their mining businesses. Companies with metal deposits are takeover targets for the producers with cash. Takeover offers in the sector will lead to a re-rating for similar companies.
Share prices have already started to rebound. This is an excellent time to be bargain hunting.
Lawrence Roulston
www.resourceopportunities.com