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MINING STOCKS ON A TEAR: QADMF, TCK, CCJ, AEM, SLW

October 17, 2010 | About:
Gordon Pape

Gordon Pape

15 followers
After marking time for much of the year, mining stocks have gone on a tear in anticipation of growing demand and higher prices. As of the close of trading on Friday, the S&P/TSX Capped Metals and Mining Index was up 19.4% for the month of October. That represents more than 85% of the Index's year-to-date gain of 22.6% and makes it the number one performing sector, by far, at the present time.

The surge in the value of mining stocks has been fuelled by significant increases in the prices of key metals such as copper. The "red metal", which contributing editor Tom Slee wrote about in the issue of Aug. 16 (IWB #20129) has steadily moved up in price since late August when it was trading around US$3.20 a pound. On Friday, October contracts on the New York Mercantile Exchange were at US$3.80 a pound, up about 19% since August.

The two copper-mining companies recommended by Tom Slee at the time have fared even better. Quadra FNX Mining (TSX: QUX, OTC: QADMF) was trading at $10.53 when Tom advised buying. It closed on Friday at $15.95, up 51.5% in just two months. We still rate it as a buy although investors who bought at the time of the original recommendation may wish to take part profits.

We have also seen impressive results from the much larger Inmet Mining (TSX: IMN, OTC: IEMMF) which was trading at $49.08 when it was recommended. It closed on Friday at $64.01, ahead 30.4%. The same comments as for QUX apply here.

Another recent mining pick that is performing strongly is Vancouver-based Teck Resources (TSX: TCK.B, NYSE: TCK), which produces copper, coal, and zinc. The company also has interests in the oil sands and may get back into gold mining in the near future. The shares were recommended by contributing editor Glenn Rogers on Aug. 23 (IWB #20130) at C$34.35, US$32.75. They closed on Friday at C$46.01, US$45.43 for gains of 33.9% and 38.7% respectively (the higher U.S. dollar gain is due to the upward move in the loonie).

Earlier this year, on Feb. 15 (IWB #20107), Glenn suggested buying shares of U.S.-based copper giant Freeport McMoRan (NYSE: FCX) at US$73.68. The stock slumped to as low as US$56.71 in early July but has rallied strongly since and briefly broke through the US$100 barrier on Thursday before pulling back to end the week at US$98.05.

We're also seeing improvement in uranium prices, which languished in the US$40 a pound range for most of the spring and early summer. They have been steadily advance since, however, with the spot price on Friday at slightly more than US$48 a pound. This has given a boost to Saskatchewan-based Cameco Corp. (TSX: CCO, NYSE: CCJ), the world's largest producer of uranium. When we last updated the stock in July, it was trading at C$26.92, US$26.07. It has been moving up since and closed on Friday at C$30.92, US$30.55. That's still below the original recommended prices but the outlook is finally showing signs of improvement and we are upgrading our rating to Buy.

Not to be forgotten in this review of the mining sector is the performance of our gold and silver recommendation. Our number one gold pick, Agnico-Eagle (TSX, NYSE: AEM) continues to do well. The stock, which was recommended on June 7 (IWB #20120) at C$61.06, US$57.69, flirted with our $76 target earlier this month before pulling back to close on Friday at C$73.49, US$72.58. We've already had a nice gain here of 20.4% in Canadian dollar terms (25.8% in U.S. dollars) but the price retreat this week offers an opportunity to take a position or add to existing holdings. AEM is still a Buy.

The same applies for Silver Wheaton (TSX, NYSE: SLW) which was recommended on Sept. 20 (IWB #20133) at C$25.75, US$25.02. The price increase in the past month has been relatively modest with the stock closing on Friday at C$28.08, US$27.70. We think there is a lot more upside potential here so if you don't own this one yet, now is the time.

Here is a list of all our current mining recommendations, with results to date and our most recent advice. Prices are as of mid-day Friday and are in Canadian dollars except where indicated.

IWB Mining Stocks

Security
Recommended
Initial Price
Current Price
Gain/Loss
Latest Advice
TIE
Nov. 28/05
US$14.67
US$20.10
+37.0%
Hold
AGU
April 30/07
$46.41
$87.51
+88.6%
Sell half
LUN
May 17/07
$14.18
$5.65
-60.2%
Hold
PLS
Aug. 30/07
$9.90
$1.10
-88.9%
Hold
CCO
June 21/08
$38.77
$30.80
-20.6%
Buy
ORV
Jan. 25/10
$1.09
$2.55
+133.9%
Buy
FCX
Feb. 15/10
US$73.68
US$97.81
+32.7%
Buy
AEM
June 7/10
$61.06
$72.99
+19.5%
Buy
FNV
July 28/10
$31.69
$33.81
+6.7%
Buy
QUX
Aug. 16/10
$10.53
$15.89
+50.9%
Buy
IMN
Aug. 16/10
$49.08
$63.65
+29.7%
Buy
TCK.B
Aug. 23/10
$34.35
$45.92
+33.7%
Buy
SLW
Sept. 20/10
$25.75
$27.80
+8.0%
Buy
Comments: Of our 13 active mining picks, eight were recommended in 2010 and all have made profits so far. The top performer is Orvana Minerals (TSX: ORV), recommended by Ryan Irvine in January and most recently updated on Aug. 9 (IWB #20128).

The biggest loser is Polaris Minerals, originally recommended by Irwin Michael in August 2007. In a detailed update published on Sept. 13 (IWB #20132), Irwin explained what has happened to this once-promising venture and advised holding position for an eventual turnaround or an opportunistic takeover bid.

We have also taken a big hit on Lundin Mining (TSX: LUN), a recommendation of former contributing editor Yola Edwards. The good news is that the stock has recovered strongly from its mid-year low of $2.91 and both the 50-day and 200-day moving averages have turned positive. Hold your positions for now.

Overall, we are very pleased with the performance of our mining picks, especially the more recent choices. However, don't lose sight of the fact this is a volatile sector. If you have scored some big gains, you may want to take some cash off the table at an appropriate time and play with the house's money. - G.P.

About the author:

Gordon Pape
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 4.0/5 (1 vote)

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