By Neils Christensen of Kitco News
Tuesday October 25, 2016 12:56
(Kitco News) - Gold prices are expected to struggle to the end of the year as the market prepares for the Federal Reserve to raise interest rates in December, but one mining analyst continues to see potential in the mining sector.
Brent Cook, editor of Exploration Insights
In a recent interview with Kitco News, Brent Cook, editor of the popular mining newsletter, Exploration Insights, said that the correction in gold at the start of the month, which saw prices fall more than 5% has created a new buying opportunity for investors throughout all segments of the industry.
The large cap mining the mining sector, represented by The Market Vectors Gold Miners Exchange-Traded Fund (NYSEARC: GDX) fell almost 14% at the start of the month but appears to be stabilizing with prices last trading at $24.70 a share, up 2.5% on the day.
Market Vectors Junior Gold Miners ETF (NYSEARC: GDXJ) fell more than 15% during the correction; the EFT is also off its support, last trading at 41.79 a share, up 2.8% on the day.
“Intelligent investors have been waiting for this correction and now it is time to acquire, selectively, quality projects that make money at this price,” he said. “Across the board, the next couple of months is the time to get positioned again.”
However, Cook’s preferred sector for long-term investors has managed to hold on to most of its gains. He said that he still sees junior explorers as the best opportunity in the mining industry, represented by the TSX Venture Index. The TSX Venture Composite, which is heavily weighted with junior miners and explorers is only down 6% from its highs seen mid-August.
Cook said that he continues to look for investment opportunities among junior explorers because this sector is ripe for take overs from major producers that have significantly slashed their exploration budgets to cut costs and improve their balance sheets.
“Fundamentally, looking longer-term, the gold mining industry is producing more gold than it is replacing,” he said. “Last year the sector produced about 90 million ounces but only discovered 40 million new ounces and that has been going on for a number of years.”
Cook added that for investors to be successful in the mining sector, they have to be aware of projects’ “fatal flaws,” -- an idea that he has been developing throughout the year.
“A majority of projects end up a bust,” he said. “Our job at Exploration Insights is to identify those fatal flaws as early as possible to get out of the stock as early as possible.”
A couple of simple factors investors should look at when evaluating projects are things like the continuity of makeup of the mineralization
“If the mineralization doesn’t connect or it takes a lot of energy to break the gold lose, those could be a huge costs that might not make the project viable,” he said.