For investors looking to take on greater risk in their portfolio, these three mining stocks could provide the reward you are looking for. All three companies mine a different commodity and the poor recent company and share price performance is a direct result of the soft underlying commodity price they depend upon. Therefore the success of any investment in these companies will be determined by the timing of that investment.
Mincor Resources NL (ASX: MCR)
Despite the company's share price falling from $5.19 a share in 2007 to $0.65 cents today, I believe this is one of better managed small-caps. The fall in the share price has been a direct result of the fall in the nickel price, which is the primary commodity the business mines.
So why do I believe this is one of the best managed small-cap miners?
- Market capitalisation of $120 million.
- Regular and long term dividend payer despite tough operating conditions
- Total dividends paid to date of $128 million
- Once-only equity raising of $5 million
- No debt and cash of $57 million
- Total profit to date of $212 million
The above set of figures confirms that management cares for and looks after shareholders like boards should but rarely do. The missing ingredient to date has been an upswing in the depressed price of nickel. The good news is that nickel is showing signs of recovery, if this recent uptrend continues this would be a stock to have in your portfolio.
Cockatoo Coal Limited (ASX: COK)
Investors in the company have had a tough time since 2011 when a major shareholder's (SK Networks) deal to fund the business fell through. This left the business on the brink of collapse despite having a significant coal resource.
The coal price remains at historically low levels and the outlook for the commodity is mixed amongst brokers. Coal is not the environmentally preferred energy option, but it is one of the few cost effective energy solutions that exist to power the growing population. If no alternative energy options eventuate than the coal price will go up.
The company's flagship Baralaba coal mine appears to be undervalued by investors when compared to competitors' mines. The company is in the process of expanding production from 0.75 million tonnes per annum to 3.5 million tonnes per annum. This significant increase in production will lower the overall cost of production and any upswing in coal prices could result in significant appreciation in the company's dwindling share price.
Paladin Energy Ltd (ASX: PDN)
I remain a believer in the merits of uranium energy. Whether the industry can overcome the fear and misunderstandings of the general public remains a key challenge to the world taking up this cost effective and environmentally friendly energy alternative.
The Paladin share price has shown some recent signs of a rally, however any real appreciation in share price will only occur if the uranium spot price finally begins to rise to viable levels for uranium explorers and producers.
The Japan and China outlook is positive with a number of reactors coming back on-line and more new reactors planned than ever before. The fears of the Fukushima disaster are finally starting to disappear which was the catalyst for the uranium spot price falling so low. At current levels no uranium mines would be able to sustain operations, therefore I expect the spot price to steadily climb for the next few years.
If the uranium spot price does climb higher, Paladin shareholders would be in the best position to benefit.
Foolish takeaway
Many investors stay away from mining stocks due to the volatility in the underlying commodity prices. However volatility is what provides investors with an opportunity to make strong returns over and above what can be achieved through most other investments. The above three stocks are not without further risks, however much of the likely downside has taken place and for that reason this Foolish investor has them all on his watchlist.
