Investing in Mining

Buy low; sell high is a basic tenet of marketing and investing. With that caveat in mind, now could be a good time to consider investing in minerals or mining stocks. This category of stocks, because of the long-term demand for metals and minerals, are almost always a good investment.

On May 26, 2009, Rio Tinto Ltd. (RTP), the world’s third largest mining company, announced an agreement with Nippon Steel Corporation of Japan to slash its iron ore prices more than a third for 2009. This move foreshadows a possible in mining industry prices, and will undoubtedly cause Rio Tinto’s share prices to dip, despite a recent rise on the Sidney stock exchange.

With declining demand from the construction and auto industries, this is an indication of an overall reduction demand for iron worldwide.

The decline in share prices is likely to persist for a time before bouncing back, making iron ore stocks an attractive long-term investment. The key is to idenfity stocks that are somewhat depressed, but that are likely to rebound in the future.

The gold market is likely to see similar fluctuation. In 2008, New Gold Inc. (NGD) bought Metallica Resources Inc. (MRB) and Peak Gold Ltd (PIK), creating a new entity that will retain the name New Gold Inc. (NGD). Under terms of the merger, investors in Metallica will receive 0.9 common share of New Gold for each common share they hold, while Peak Gold shareholders will receive 0.1 common share for each of their common shares. The prediction is that the larger entity will eventually command a higher rating resulting in increased share value for investors.

Investors interested in gold and other precious metals should be on the lookout for planned mergers, as this is the time to buy shares. Special attention should be paid to those companies with strong property holdings in stable areas.

Another trend to watch, if you’re interested in mining stocks is the increased demand for steel in pipeline projects, as aging oil and gas pipelines are renovated and new projects are planned. The increasing energy demands from China, and Russia’s desire to be Europe’s main supplier of oil and gas could mean more than 70,000 miles of new pipeline over the next 20 years, requiring 1,600 tons of steel for every mile. This will act as a pull on molybdenum production, a byproduct of copper mining. The time frame of pipeline construction means that these stocks are likely to have a long period of profitability.

The molybdenum stocks to watch are Blue Pearl Mining (BLE), which ranks in the top five producers; Roca Mines (ROK), a company that is planning production in British Columbia; and United Bolero Development Corporation (UNB), which has new production scheduled to come on line in the next couple of years.