More potential buys in the junior sector

On February 23, 2009, I told Growth Stock Wire readers how a bull market was starting in small-cap gold and silver stocks…….. known by many as "junior" miners.

Back then, the "juniors" had suffered a horrible bear market... and many offered great values. But when it comes to juniors, you have to be picky with who you invest with. You have to stick with great managers. So I published a list of six potential buys based on their management.

Here's how we did...

^Indicates a takeover

Our average gain, on a holding period of about 30 months, was 271%. That means, if you put $2,000 to work in those stocks, you'd have $7,420 right now.

Even after their huge run up, many of the juniors are less risky today. You see, the best of them used two years of capital to outline real resources or develop assets.

Take Fortuna Silver Mines Inc. (TSX: T.FVI, Stock Forum) for example. It took advantage of low prices in 2009 to acquire Continuum Resources. That gave Fortuna full ownership of a Mexican silver and gold deposit called San Jose. Since then, the company has developed San Jose into a mine that will go into production later this year. Fortuna has skyrocketed as a result.

Fortuna isn't the only one. Since 2009, juniors made two major gold discoveries in the Yukon, a major discovery in Mexico, and a major silver discovery in Argentina. Great discoveries like these are always "buyout" candidates of the larger mining companies.

The big mining companies are in a bind. They need to replace produced gold ounces with reserves. The best mining companies have projects stacked like airplanes on approach to La Guardia airport. That way, as one mine is exhausted, the next one is already in production. But great projects aren't discovered all that often – probably less than one per year. So they compete for the best ones.

At the same time, the mining companies are cash-rich. Major miner Kinross Gold Corp. (TSX: T.K, Stock Forum) and (NYSE: KGC, Stock Forum) has about $1.6 billion in cash... or 8% of its market cap. Iamgold has about $1.2 billion... or 15% of its market value.

These companies don't particularly like sitting on that much cash. They're accumulating it so they can acquire companies with great projects.

We already saw one big gold discovery taken off the board this year. Fronteer Gold bought out its junior partner, AuEx, for $281 million to gain control of their joint discovery, Long Canyon. Just a few weeks later, Newmont Mining Corp. (NYSE: NEM, Stock Forum) bought Fronteer for about $2 billion.

I believe ATAC Resources Ltd. (TSX: V.ATC, Stock Forum) could be a solid buyout candidate. It owns 617 square miles in the Yukon. That land package covers two gold trends, Rau and Nadaleen. Rau hosts what could be a major gold discovery. The company is drilling 30,000 meters of core (over 18.5 miles) this year. If the ATAC confirms the existence of a big gold discovery, it will spark a bidding war from the majors.

Another stock to add to your watch list is Mirasol Resources Ltd. (TSX: V.MRZ, Stock Forum). Mirasol spent the last two years delineating a new Argentinean silver discovery, called Virginia. Mirasol already has one big discovery, called Joaquin, which is owned in part by Coeur d'Alene Mines Corp. (TSX: T.CDM, Stock Forum). I wouldn't be surprised if Couer d'Alene "pulled a Fronteer" and bought out Mirasol.

While we made some huge gains from 2009 to today, there are still excellent opportunities to profit in the junior mining sector... especially in companies with proven assets like ATAC and Mirasol.

Link phrases,

Bull market, junior miners, proven assets, great managers, silver discovery, mining companies, Argentina, gold discovery, holding period.