Is it time to Invest in Mining Companies?

Now is not a good time to invest in most mining companies. The price of molybdenum has been below the break even point ($5-10 per pound) for some time (James Finch). The price of iron is down by a third from last year. The three top iron-ore producers Vale de Rio Doce (NYSE: VALE5), Rio Tonto (NYSE: RTP), and BHP Billiton (BBL) have recently renegotiated prices with Chinese and Japanese producers to reduce purchase prices by 33% in line with the prices seen in recent markets (Andrew Forrest). Even so, iron is still above the break even point of $23 per pound (

wwwZ6EFPEW56Bhttp://www.marketint elligencecenter.com/articles/8 79278WH6PD.marketintelligencec enter.com/articles/879278). Rio Tonto (RTP) stock closed May 29, 2009 at $181.44, well below its 52 week high of $497.50. BHP Billiton (BBL) stock closed at $48.10 on May 29, 2009, below the 52 week high of $78.45. Iron Mountain(IRM) stock closed May 29, 2009 at $27.25 a share, slightly below the 52 week high of $31.27.

With gold prices currently at about $980 an ounce, one could expect that gold stocks would be a good buy since the break even point for gold is $350-450 an ounce and production is not keeping up with demand (www.eceda.com/MiningFuture.pd f). Gold stocks have seen a 30 day gain of 100 to 1,000 percent (from wwwZ6EFPEW56Bhttp://www.miningner ds.comWH6PD.miningnerds.com). Even Great Western Minerals Group Ltd. (GWG) has seen a weekly gain of over 85%. But these recent gains have pushed the gold stock prices close to their 52 week high. (Randgold Resources Ltd. [GOLD]) closed May 29, 2009 at $69.81, slightly lower than its 52 week high of $70.46. Gold Fields (GFI) closed May 29, 2009 at $13.58; its 52 week high was $13.54.) It may be possible to still find some gold stocks sitting at the mid-point between their 52 week high and 52 week low such as Gold Corp (GG) at $39.73 May 29, 2009 with a 52 week high of $52.65. These stocks might be a good investment now.

The one bright light in the mining industry just might be coal. Even though there is a resurgence in alternative energy development, coal can be expected to be used to generate electricity for some time as alternative energy may only meet 20% of future energy requirements. Alliance Resource Partners (NASDAQ: ARLP) is the 4th largest US coal producer in the US. It's stock closed May 29,2009 at $27.55; that is well below the 52 week high of $109.27. Arch Coal, Inc. (NYSE: ACI) is the largest US coal producer; the stock closed May 29, 2009 at $18.55; again well below the 52 week high of $77.40.

The best time to invest in a mining company is just before it discovers its next mining resource. The second best time to invest in a mining company is just before the commodity starts to increase in price or just before the stock splits. Considering that the current recession is decreasing demand for most mining commodities, the only day to invest in a mining company is when production is not meeting the demand which keeps the prices above the break even point and the current stock price well below the stocks highest value before the recession.

Note: Price quotes are from wwwZ6EFPEW56Bhttp://www.poweropt. comWH6PD.poweropt.com.

Learn more about this author, Helena Whyte.
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