3 Metal Companies To Protect You From Inflation Risks

Includes: AUY, GLD, NEM, SWVI
by: Daniel Todd

As equities have continued to rally and have begun approaching highs set back in 2007, inflation fears have subsided. Investors' thought process of carefully assessing the economic conditions before making a stock purchase has been replaced by the thought process of buying everything because everything is going up. The S&P 500 has now more than doubled in nearly 4 years and the stock market sentiment has clearly turned around from the wariness seen back in 2009. And that sentiment turnaround may signify that it's time to take a closer look at one's investments and some of the other atypical options available in the equity markets. This contrarian thought process is commonly associated with the great Warren Buffett, who says "be fearful when others are greedy and greedy when others are fearful."

The market has obviously forgotten the possibility of inflation and the number of stimulus programs the Fed announced. The fiscal deficit that the federal government is running has also conveniently been put on the back burner. The national debt crisis also looms. Notably, all of those points could possibly serve as catalysts for inflation reappearing as the economy continues to gain steam.

One of the most well-known inflation plays is gold and companies that are gold miners. The most basic option is the Gold ETF (GLD) but here are two company-specific gold stocks.

Yamana Gold (AUY) is a Canadian-based gold producer with significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Colombia. Yamana plans to continue to build on this base through existing operating mine expansions, throughput increases, development of new mines, the advancement of its exploration properties and by targeting other gold consolidation opportunities with a primary focus in the Americas.

Analysts peg a fair value of the stock at $23 a share, approximately 40% higher from today's prices. The company also pays a dividend, although not as sizeable as Newmont's to the tune of a yield of 1.6%. A recent Seeking Alpha article said that the company is a "buy" based on its key metrics and increased production guidance.

Although less well known, copper also may serve as an inflation hedge as well. Copper prices are typically known as being tied to economic activity but some say that copper may be a better inflation hedge than the more popular gold and silver. Here is a copper stock that may be interesting as an inflation hedge:

Swingplane Ventures (SWVI.OB) has own property, which is said to be promising, the Algarrobo Property. It is located approximately 850 km north of Santiago, in the III Region, Province of Chanaral, Chile. The mineralized trends are very well defined at surface through abundant workings, both historical and from more recent work. The workings range from shallow pits and near surface workings to more extensive mine development extending up to 450 m below surface. Taken together, these workings are interpreted to clearly delineate four major veins. These veins may represent secondary veins developed as a series of splays, comprising "horse-tails", to the primary veins and/or a nested set of primary and en echelon secondary veins.

Not to be left out, Swingplane has seen some positive commentary as well. Just Wednesday, a small investment firm released a research report issuing a $10 target price on the stock. Recent news from the company included an update to its Algarrobo property. The company said that between December 6 and 9th, 2012, a second property evaluation was undertaken on the property, during which six additional representative grab samples were recovered, primarily to evaluate high grade mineralized material recovered from the recently exposed Descubridora Drift. Grab samples were recovered from high grade mineralized material visually sorted into four piles, grading approximately 10% (ALGARW12-011 - mix of high grade mineralized material from Descubridora and False Estaca workings), 20% (ALGARW12-010), 30% (ALGARW12-009) and 40% (ALGARW12-012) Cu. These samples have a high proportion of Brochantite (Cu4SO4(OH)6 which, as a mineral, contains approximately 70% copper content.

Back to the inflation warnings signs, key members of the economic community have also recently noted their inflation concerns. A month ago, in remarks that stamped her as a hawk on the Fed's policy-setting committee, Kansas City Federal Reserve President Esther George warned that the Fed's near zero interest-rate policy - aimed at boosting the economy - could spark inflation. "A prolonged period of zero interest rates may substantially increase the risks of future financial imbalances and hamper attainment of the 2% inflation goal in the future," she said in her most extensive remarks in a year on policy. "Monetary policy, by contributing to financial imbalances and instability, can just as easily aggravate unemployment as heal it," she said.

Bill Gross, founder and co-chief investment officer of bond giant PIMCO, wrote in his first letter to investors in 2013 that money printing by central banks will lead to a destructive bout of inflation. "Zero-bound interest rates, QE maneuvering, and 'essentially costless' check writing destroy business models and stunt investment decisions which offer increasingly lower ROIs and ROEs," Gross wrote, referring to returns on investment and equity.

Newmont Mining (NEM) is primarily a gold producer, with significant assets or operations in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico. Newmont is one of the world's largest gold producers and is the only gold company included in the S&P 500 Index and Fortune 500.

Analysts see a fair price of $58 for the shares which would be a gain of 30% for investors from today's prices. Newmont pays a sizeable dividend with a dividend yield of 3.2% so investors should be able to earn some sort of return if the stock continues to stay sluggish. In a recent Seeking Alpha article, it was mentioned that the company may be an "incredible" steal at current prices.

Newmont recently announced its outlook for 2013 production, costs and capital expenditures. Newmont said that attributable 2013 gold and copper production are expected to be approximately 4.8 to 5.1 million ounces and 150 to 170 million pounds, respectively, at costs applicable to sales of approximately $675 to $750 per ounce and $2.25 to $2.50 per pound, respectively. The company also announced that it anticipates 2013 all-in sustaining costs to be between $1,100 and $1,200 per gold ounce of production. Newmont expects to invest approximately $2.1 to $2.3 billion in attributable capital expenditures in 2013, of which approximately 40% is allocated to development capital, including at the Akyem project (~$250 million), Ahafo Mill Expansion (~$150 million) the Conga project (~$150 million), and other expansion projects in Nevada (~$260 million) and at La Herradura (~$40 million), with the remaining 60% expected to be spent on sustaining capital.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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