Silver and Gold Rule the Stage

Our coverage of the PDAC continues today from Toronto, Ontario. The city is hosting the Prospectors and Developers Association of Canada (PDAC) International Convention - the biggest gold and silver miner's conference in the world.

I've sent Tyler Laundon, the lead research analyst at Small Cap Investor Pro up to Toronto, along with Kevin McElroy, editor of Wyatt Investment Research's daily e-letter, Resource Prospector.

Here's what Tyler has to say this morning:

"Over the last three days I've probably heard around 30 public presentations from mining companies, and I've spoken with a dozen executives in private conversations. The overwhelming majority of these guys are extremely positive about their company's prospects for growth.

I don't want to throw a damp towel on the party - but it's important for investors to realize that these conferences are essentially designed to present companies in the best possible light. There are news releases timed around the PDAC so that news flow keeps companies in the spotlight.

With that small disclaimer, I will say that I've found some exciting opportunities. I'm primarily interested in the gold and silver miners. But in addition to these, of which there are literally hundreds, I've jumped into the rare earth fray a bit, and have also wandered over to a few bulk commodity presentations (things like iron ore and potash).

I don't have time to get too specific today, but our readers should be interested in a few high level observations:

Gold and Silver: The euphoria surrounding these metals is high, but isn't at the mania stage yet. It's clear that the majors and the mid-tier producers are looking to increase reserves sine they've been pulling gold and silver out of the ground quickly to take advantage of high prices. We saw this yesterday when Endeavour Silver EXK released its latest NI 43-101.

So this means explorers and developers have a lot going on - they've all got a plan, and most would appear to have the money, to advance their projects to the next stage - be it prefeasibility, feasibility, or an updated 43-101. I'd say if a company doesn't have cash at this point to fund exploration/development for the next 1 to 2 years, you're probably not looking at a great opportunity. Naturally, there can be a lot of nuance to financing, but use this as a general guideline.

Three geographic regions I like for silver and gold are Mexico, South America, and western Africa. Our readers probably know why we like Mexico already since we've been talking about the Sierra Madre Silver opportunity since mid-spring (Editor's note: You can get a copy of the report by clicking here now.)

I'm fond of South America, not just because I lived in Lima, Peru when I was 13 and traveled in Chile, Argentina and Brazil in the early 2000s, but because it's got a ton of metals and minerals.

Argentina is becoming more of a hotbed for silver and gold mining, Bolivia has some attractive large, but low-grade ore bodies, and Chile is just littered with copper. And don't forget about Brazil, Colombia, and tiny Guyana - all in all there's a lot to like for precious metal investors in South America. I'll go into more depth on these countries in the coming weeks.

West Africa is also compelling, not just because it is home to world class deposits, but because the turmoil in the northern part of the continent has elevated the perceived risk of all investments in Africa. I think self-directed investors should be following the story here closely, and picking their spots to add exposure on weakness.

Finally, the rare earth miners. These guys have been hot, that's no news. But I don't know that many of our readers realize that this is a very small group of companies. There are basically two that are in, or near, actual production. The rest are either exploring, or still in development stage.

Don't look for any company in this second camp to be in production before 2015 - and even then they'll need plants to process the concentrate (rare earth minerals are typically small, and are separated in solution). So, the companies that have actual plans to build the rare earth equivalent of an oil refinery, and the money (maybe one development stage company fits this description) look better then the pure explorers to me.

But this is really a China rare earth policy story, and because of that it's a hard one to follow on a fundamental level.

For that reason, while it is interesting reading, the entire segment has a chance, in my opinion, of moving to lower valuations depending on the policies of China, and as new supplies get closer to coming online in the U.S. Basically, I'd want to complete some forward looking modeling of supply/demand, then pick my prices for stocks in this arena.

So I'm more interested in the gold and silver story based on solid underlying fundamentals for higher gold and silver prices, and will be following up with more companies and executives today."

I'm looking forward to more insights from these guys in the coming days at the PDAC.