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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (33291)	2/19/2007 9:42:53 AM
From: LoneClone	Read Replies (1) \| Respond to of 78409

Metals Moving Along as Expected By Michael J. DesLauriers 18 Feb 2007 at 08:52 PM EST resourceinvestor.com TORONTO (ResourceInvestor.com) -- So far in 2007 the resource sector has been following the course suggested by your correspondent just before Christmas. At the time, we asserted that “2007 will be the year that the precious metals take the lead in outperforming their resource-sector brethren.” It was also our belief that base metals would sell off but remain buoyant, and that related equities should be treated with a negative bias. In terms of uranium we thought that the price of the yellowcake would continue higher but that it wouldn’t hurt to take some profits, with most valuations getting somewhat out of hand on the good and bad names, alike. The idea was to start rotating money back into quality precious metals stories, many of which are followed by RI. Up to now, things appear to be following that course, with gold and silver both up, gold about 8% and silver more than 10%. Meanwhile the base metals (apart from nickel) have indeed been trending lower - copper is off 13% and zinc has dropped by more than 20%. We maintain that, “while base metals companies can make disgusting profits at current and discounted prices, these equities will not likely benefit from the additional momentum of rising action in the underlying commodity prices. This doesn’t mean, as many are suggesting, that we are due for massive and permanent pullbacks, more likely, one should expect prices to remain buoyant with a negative bias.” With all of this in mind the idea is to stay the course, and should gold take a run at $700/oz in the near future, things will really start to accelerate. Performance vs. Price As we have emphasized repeatedly in the past the strategy should be to take positions in names with the ability to deliver serious returns regardless of price trends (within reason), because these are the stories that truly represent value. Sifting through the thousands of listed resource related plays, one comes quickly to the realization that a large number of them lack standalone fundamentals and are simply a call option on the price of a given metal and its performance. The option analogy is particularly relevant as it relates to the value of time and the opportunities that are missed owning one thing instead of another. For that reason we choose to focus on companies that can deliver in just about any environment, rather than bandwagon jumpers such as are being seen in the uranium exploration game, almost all of which will one day revert to shell status. Despite that fact, there is obviously money to be made with these stories and there is nothing wrong with participating provided one enters the trade at appropriately cheap valuations. Although it is difficult to experience negative returns in the current market environment for resource related plays it can certainly happen, and will, when over-enthusiasm and hubris abound. This topic was recently discussed by RI in the context of how to successfully invest in exploration companies. Conclusion We believe that the precious metals will continue to be the best place for resource-sector dollars in 2007. Nevertheless investors need to be cognizant of valuation levels and particularly of which companies deserve investment on a fundamental standalone basis, and which ones need to be avoided so as to maximize returns even if the market goes sideways.