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Silver Wheaton Corp. (USA) (SLW), Yamana Gold Inc. (USA) (AUY): Why I’m Buying Mining Stocks

Trends are hard to change
Finally, long-term trends are really difficult to change just because spot prices move against the grain for a short period of time. Let’s look at coal, for example.


Source: Stephen Codrington, commons.wikimedia.org.

Coal was responsible for 42% of all electrical generation in 2011, according to the U.S. Energy Information Administration. Even though cheap natural gas prices and an abundance of newer clean-energy sources such as wind, solar, and geothermal are persuading electric utilities to beef up their alternative-energy portfolios, coal isn’t going to disappear overnight. On the contrary, coal is expected to play a major part in helping America achieve its independence from foreign sources of fuel.

The company I’ve had my eye on here for a while, and which is currently in my “One Person’s Trash Is Another Person’s Treasure” portfolio, is Arch Coal Inc (NYSE:ACI). Arch Coal Inc (NYSE:ACI)’s production is made up almost entirely of thermal coal, but it does generate close to 9 million tons of steel-strengthening metallurgical coal each year. For Arch Coal Inc (NYSE:ACI), the catalysts I’m seeing are rising natural gas prices, which have made the switch to natural gas for utilities not nearly as logical, as well as a forecasted bump in demand from emerging markets such as China and India, which are still relatively early in their industrialization phase. Arch Coal Inc (NYSE:ACI) has been working diligently to diversify its cash flow by forging long-term export contracts for its coal, and just this week it signed a deal with Meritage Midstream to develop a rail and oil storage terminal at its Powder River Basin property.

On the lookout
With the broad-based S&P 500 closing at another record high on Friday, about the only real value I see in this market lies with metal and mining companies. I will remain on the lookout for great deals primarily because of the catalysts I’ve mentioned here and suggest you not ignore a much-maligned and widely disliked mining sector.

The article Why I’m Buying Mining Stocks originally appeared on Fool.com and is written by Sean Williams.

Fool contributor Sean Williams owns shares of Thompson Creek Metals and owns a January 2015 $2 call, but he has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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