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7:41 am  Monday  5 September 2011

I think that the big drop in LC/B prices last week should not discourage us, but instead encourage us to step back a while and examine our risk appetite for mining stocks. Over the past few weeks, the mining sector was where the action was. At this point, many would be asking if the move on some of these mining stocks was over. I think it would be myopic to view the sector in that manner. Undoubtedly, the move in LC/B as well as MA/B and even ORE in the past few weeks had been close to spectacular. In fact, a lot of money has already been made resulting in prices to be vulnerable at last week’s level. I think investors and traders alike should examine their time horizons. I always try to remind people of this perspective.

The ability to hold positions for a longer horizon reduces the long-term risk for such investors if they accept that prices will be volatile in the short run. If the stock is fundamentally sound and valuations are not yet stretched, more money can actually be made by averaging down on the stock position if one has a longer time horizon for holding the stock. I must admit, since LC/B moved in May, it was almost impossible to average down on the stock as prices were just going one way. For true believers in LC/B, this may just be the opportunity to position for the long run. I am not advocating that people should buy now or today. I am merely saying that if one were truly a believer that the stock could go the way of PX and AT over time, any further decline in price of LC/B should be a buy opportunity.

Nevertheless, I urge caution rather emotional trading in managing one’s positions here. I personally feel that LC’s drop to around 1.40 in the short term was healthy. I am confident though that 1.40 should hold; but if it does not, I will not be surprised if we form a base at 1.20. I cannot help but recall my losing position on ORE last year up to early in 2Q-2011. I was not able to get out of all my positions when ORE hit a high of 4.50 in November 2010. People lost faith in the stock because shipment got delayed despite production a schedule that proceeded as planned. Fortunately, when shipments got under way and the company finally reported a profit in 1H-2011, the price recovered from a low of 2.10 in April. Believers such as me managed to average down below 2.50 allowing us to take some profits above 5.40. Now there is room to re-establish positions now that the stock is trading around 4.70. I think the same could be said about LC.

As for other mining stocks, I am quite confident about MA/B because from what I hear the company already has plans for its Kalayaan mine to go into production within the next 12 months. The price of AT is meandering at these levels, but profitable productions can be expected this year at current metals prices.  I am hearing some institutional accumulation of AT.  With PX, I am a bit skeptical about a further rise in the price of the stock although some analysts are still looking at above 30 for this stock. PX is still the bluest among the mining stocks, and it should not be ignored if only for its value as a bell weather of gold prices.

What I like about the mining sector is that it looks to be a sunrise industry again for the country. Yes, it was the industry of the 1960’s and 1970’s, but it was dormant for over 20 years. It is only now that we are seeing a revival and revivals, such as this, normally take years to settle down. We should be in there for the ride and be thankful that we are here to profit from it.

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