No Debt and a Huge Mineral Reserve for This Junior Miner

Most investors are aware that China produces the vast majority of rare earth minerals in the world today. Because of this reliance, mining companies have spread out around the world to start looking for economically viable rare earth deposits. This is to help companies diversify away from China, which has shown to be difficult at times when issues arise with supply.

Mining companies are exploring the U.S., Canada, Africa, and Australia. For years, it has been known that these areas do hold rare earth minerals, but mining companies haven’t developed these sites, because Chinese firms have been able to dig these minerals out of the ground for a lower cost. However, as technology grows so too will demand, as we have seen prices move up over the last decade.

While rare earth pricing is volatile, as we’ve just seen a correction last year, the long-term trend is still positive. The time between mining companies finding larger reserves of rare earth minerals and the companies actually bringing it to market takes several years. Perhaps the time is right to start thinking about acquiring the stocks of some mining companies before prices begin to move up again.

Some mining companies offer better prospects than others. One name in the rare earth sector that is interesting is Avalon Rare Metals Inc. (AMEX/AVL; TSX/AVL). The firm owns several properties in North America that it believes contain significant levels of rare earth minerals. Its main property is the Nechalacho deposit near Thor Lake, Northwest Territories, Canada. This is one of the world’s largest undeveloped rare earth element properties.

The company has no debt and has $38.0 million in cash. The stock has a small market capitalization, with a value of $190 million. While some mining companies have had trouble in the past when it comes to rare earth minerals, many times it was due to too much leverage. By keeping its operations devoid of leverage, the firm is free to proceed at its own rate.
The stock has sold off along with other mining companies in the rare earth sector, but recently, we’ve seen a significant amount of capital flowing into these shares. The next obvious line of resistance will be the 200-day moving average. Considering there is still some more work that needs to be done, some risks are left on the table. I would like to see a few more quarters of work on their mines before considering committing capital to this or any other rare earth mining companies.

Clearly, there are opportunities for investors looking to add mining companies and early-stage, exploratory firms in the rare earth space. As more devices are built, more uses for rare earth minerals continue to grow and so will demand for these mining companies. Caution is always warranted, especially for the early-stage exploration firms that are in the process of evaluating what their properties actually hold.

Source: http://www.pennystockdetectives.com