Look Beyond Gold For Compelling Risk/Reward Ratios

market outlook

Diversify, diversify, diversify—that’s Michael Curran’s advice for metals investors. So if you’ve been obsessively eyeing gold and silver prices, you might want to focus your attention elsewhere in the mining sector, says the Beacon Securities mining research analyst. Nothing wows the market like discoveries, and exploration success in the copper, zinc and uranium spaces are making some shareholders very happy indeed. In this interview with The Metals Report, Curran shares his top speculative picks for a diversified mining portfolio.

The Metals Report: A lot of investors concentrate exclusively on precious metals. Why is diversification something they should consider?

Michael Curran: Because investments focused on exploration success should result in share price appreciation regardless of the commodity, especially when high-grade discoveries are made.

TMR: There are a great many low-price metal stocks today, but how do we find the real bargains?

MC: We concentrate on assets, location, management and balance sheets. We’re looking for assets with potential for high-grade discovery. We’re looking for low political risk in the location of these assets. We’re looking for strong management with backgrounds in exploration and discovery or people who have demonstrated past involvement in success stories. And we’re looking for companies that have enough cash to do exploration in the short term or a combination of assets and management expertise sufficient to raise money, which is not the easiest thing to do in this market.

TMR: What copper-gold speculative plays do you find most attractive?

MC: The first is Colorado Resources Ltd. (CXO:TSX.V). The company’s North ROK project is in northwest British Columbia, near the Alaska Panhandle. It had one pretty impressive drill result back in the spring that took the stock from $0.30 to $1.50.

“We concentrate on assets, location, management and balance sheets.”

More recent drilling has been less spectacular in terms of grade, and the stock has come back down. The excitement has waned a bit, but the property remains open, and there’s still potential for future drill results to compare more favorably to the hole that got the stock moving last April.

TMR: North ROK is 15 kilometers from Imperial Metals Corp.’s (III:TSX) Red Chris copper-gold mine. How significant is this?

MC: Very significant. When a neighbor 15 kilometers away is spending $500 million ($500M) to build a very large open-pit mine, it does have implications for the size of deposit that Colorado would need to find.

If there were nothing going on around it, we suspect Colorado Resources would need to find a deposit of similar size to what Imperial has found. But with Red Chris so close, that lowers the threshold for economic discovery. If Colorado Resources finds something small but high grade, then certainly it’s not hard to imagine that Imperial might be interested in something smaller that’s truckable to its processing plant.

TMR: So Colorado is a possible takeover target?

MC: I think it’s too early for that, but I’m sure Imperial is watching the drill results from North ROK. If Colorado gets more results like the first hole—0.63% copper and 0.85 grams per tonne gold (0.85 g/t) over 242 meters, which is about double Imperial’s reserve grade—Imperial would be much more interested.

TMR: What is your second copper-gold play?

MC: Antofagasta Gold Inc. (AN:TSX.V), which is in Chile. We were first interested in the company for its gold play, which is very close to Yamana Gold Inc.’s (YRI:TSX; AUY:NYSE; YAU:LSE) El Peñón mine, a high-grade, narrow-vein gold-silver deposit that’s been in operation since 2000.

” Investments focused on exploration success should result in share price appreciation regardless of the commodity, especially when high-grade discoveries are made.”

More recently, Antofagasta has picked up a very large land package in the heart of Chile’s copper country. This land hasn’t really been explored for several decades and was held previously by a non-copper company. Antofagasta will start to explore it next year. This is an area where a half-dozen very large copper mines are being run by several of the biggest mining companies in the world.

TMR: How do you rate Chile on geopolitical stability and mining friendliness?

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