Penny Stock Increases Copper Production by 15% and Molybdenum Production by 73%

With the recent rush into gold and silver mining stocks, investor sentiment has certainly shifted. However, there still might be opportunities among mining stocks that haven’t yet made a significant move. Part of the problem with lagging investor sentiment is that some institutions will focus on the primary trade—gold, for example. But, one market that investor sentiment has just now started moving into is copper investing.

As the chart shows, copper appears to be forming a breakout from negative to bullish investor sentiment. This can be a good thing, as some mining stocks that focus on copper and other assorted products have certainly lagged behind gold mining stocks and silver mining stocks.

 Chart courtesy of www.StockCharts.com

This is a three-year weekly chart of copper. Investor sentiment has been weak during the summer, but it then moved up substantially before pulling back recently. However, the market is now above several support lines. This might be an area in which investor sentiment might once again shift positively.

One of the interesting mining stocks is Amerigo Resources Ltd. (TSX/ARG). Not only does this stock trade in Canadian dollars, which is a great hedge against a decline in the U.S. dollar, but it also mines and sells copper and molybdenum.

For the third quarter, which ended September 30, 2012, the company reported strong results with an increase in copper production by 15%, and molybdenum production increase by 73%, higher than the same period last year. The company still expects to produce 50 million pounds of copper and one million pounds of molybdenum. (Source: Press Release, “Amerigo Announces Q3-2012 Financial Results”, Amerigo Resources, November 8, 2012.)

The company incurred several one-time charges, including a bonus payment to its Chilean workers, and a new four-year agreement with the union. The good news is that this resolves any potential labor setbacks for the next few years. Mining stocks have many hurdles when they’re extracting commodities, and labor costs are one of the most crucial for long-term profitability.

Chart courtesy of www.StockCharts.com

The stock has suffered this year, but compared to the chart of copper, it’s clearly lagging the underlying commodity. While corporate earnings have been under pressure from short-term issues, such as labor problems and spikes in power costs, if these inputs turnaround over the next year, and copper continues its move up, mining stocks in this sector should do quite well.

Also note that investor sentiment is quite neutral in the stock. This could be a great opportunity to get ahead of a positive shift in investor sentiment, since once mining stocks become “hot,” the moves can be quite fast—both to the upside and downside.

Obviously, no one can predict all of these events. However, higher risks can generate larger rewards. The stock does appear to have bottomed out. Mining stocks in this sector that have lagged behind the price of copper, such as Amerigo, may be interesting plays, if investor sentiment can catch up with the commodity.