By MoneyMorning.com.au
If you invest in a big miner, like Rio Tinto or BHP, it already has rising prices, commodity shortages and ‘growing demand’ priced in. Their shares are down 23 per cent and 18 per cent this year. So far.
Commodities like tin, copper and uranium, have dropped 27 per cent, 35 per cent and 23 per cent this year too… Even though they’re still in short supply and high demand.
So how do you make money out of resources? Everything seems overpriced! You look for take-over targets and treasure hunters. Small-cap explorers that give you the chance to cash in on high commodity prices even if they’ve peaked.
Here’s why…
Rio Tinto is the fourth largest copper producer in the world. It pumps out 800 million tonnes of copper a year… And if you bought Rio shares in November 2008, you’d have gained today about 16%. Even though the copper price jumped 166%!
Why? Because the market had already priced in the resource and demand.
But then there are treasure hunters. Companies that start out with nothing and trade for mere cents. They have nothing ‘priced in’ by the market. Because all they have is a patch of land and a drill.
Ventnor Resources, a rag-tag explorer, bought a dirt patch next door to Sandfire Resources proven copper reserve. It drilled a hole. Found something. And the share price sky-rocketed 226%…
And there are take-over targets…
Equinox Minerals was Australia’s largest copper producer. It got two take-over bids in April… $6.3 billion from Minmetals. And $7.69 billion from Barrick Gold. And its share price nearly doubled from $4.85 to $8.80 (an 81 per cent gain).
The trick is finding these sorts of companies before they take off. If you’d like to know how to do that, we’ll show you how later this week.
Aaron Tyrrell
Editor, Money Morning
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