Just two months into 2017, these three mining stocks have already gained more than 30%.
SolGold (LSE: SOLG), an Australian gold and copper mining company listed on the alternative investment market (AIM), has seen its share price soar on growing optimism with its Cascabel copper and gold discovery.
There's mounting evidence that the Cascabel deposit in Ecuador has the potential to rival the scale of the largest existing mines, such as Grasberg in Indonesia and Oyu Tolgoi in Mongolia. Such new discoveries of large copper deposits have become extremely rare in recent years and big miners have had to spend bigger sums on exploration.
But while the potential rewards of investing in a potentially huge copper mining prospect are considerable, SolGold is still at a very early stage. Certainly, the stock has benefited from positive news flow in recent months, but we shouldn't ignore the possibility of setbacks. Moreover, a lot of the upside seems priced in, after a 1,446% surge in its share price over the past 52-weeks.
Growing free cash flow
Meanwhile, Russian gold miner Highland Gold Mining(LSE: HGM) may have a simpler investment case. The AIM-listed miner already has three operating mines and last year produced over 261,000 ounces of gold. It is generating growing levels of free cash flow, which will no doubt help efforts to develop its pipeline of low-cost projects in the largely untapped Eastern Siberia and Far East regions.
With total costs of $444 per ounce and all-in sustaining costs of $609 per ounce, Highland is on the very low end of the industry cost curve. What's more, the miner has an ambitious growth strategy -- it's target is to roughly double production to 500,000 annually by 2020, by expanding capacity around existing production clusters and developing a potentially bigger prospect in the remote Chukotka autonomous region in the Russian Far East.
Highland has yet to release its full-year results, but judging from its recent production update and strong first half performance (operating profits more than doubled to $50.4m, from $18.8m H1 2015), I expect a big hike in profits to be announced for FY 2016 due to the increase in output, improved pricing and strict cost control.
It's not just small-cap miners that have seen the value of their shares soar. Shares in KAZ Minerals(LSE: KAZ), the Kazakhstan-based copper miner which was formed out of Kazakhmys, have gained 45% year-to-date.
Kaz Minerals, which had spun-off its high cost copper production assets to focus on a series of low cost growth project, is beginning to deliver the results where it counts. After roughly $3.5bn of investment in its two key open pit copper projects Bozshakol and Aktogay in Kazakhstan, copper production is expanding rapidly -- last year, copper production rose by 73% to 140,000 tonnes. What's more, the company is on track to reach its target in annual production of 300,000 tonnes by 2018.
Shares in Kaz Minerals seem fairly valued, with a forward P/E of 12.0, falling to just 7.2 for 2018. However, the stock will likely disappoint on the dividend front. With net debt of $2.67bn and a capital spending budget of $700m for the next two years, dividends just aren't a major priority. City analysts seem to agree, with the majority expecting the company to pay nothing to shareholders for at least another two more years.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.