Investors Look to Small Cap Mining Stocks as Materials Sector Surges due to Rebounding Economies

Photo by Dominik Vanyi on Unsplash

As the U.S. economy grows at its fastest rate since the 1980s, mining companies are benefiting from a price surge in metals like copper, nickel and aluminum. Behind that price surge is the anticipation of renewed investment in infrastructure and manufacturing, two sectors where mined resources are key components of building and developing new technology.

American Pacific Mining (OTCQB: USGDF), the Canadian-based company focused on copper, gold and silver exploration in the western United States, is one of the rising companies in the space that’s been attracting new investors interested in adding mining stocks to their portfolio. Key acquisitions and a joint venture agreement with the major mining company, Rio Tinto (OTCMKTS: RTNTF) are among the main factors driving investor interest in the high-growth potential stock.

Rio Tinto Began Drilling at the Madison Copper Gold Project

Kennecott Exploration, a division of Rio Tinto, is funding the exploration of the past-producing Madison Copper Gold Project in Montana this year after results from previous drilling campaigns demonstrated high-grade copper and gold potential at the project. The Madison project has a rich history of high grade production, churning out 2.7B pounds of copper with grades ranging from 20% to over 35% and 7,570 ounces of gold at 16.1 grams per tonne between 2008 and 2012. Industry insiders know that high grades like these are phenomenal. American Pacific inherited the earn-in agreement and option to joint venture with Rio Tinto on Madison when it acquired the Madison project last year.

This partnership with a major mining company like Rio Tinto is one of the key signals investors look for in evaluating smaller cap mining stocks. Founded in 1873, Rio Tinto is one of the world’s largest mining companies and owns and operates mines, mills and other facilities around the world. A company as established as Rio Tinto is known for doing significant due diligence before agreeing to be involved in a project. That it’s chosen to invest so much time and capital into the Madison project is a strong testament to the potential at American Pacific Mining’s flagship asset.

Not only does it signal the project’s potential, but it also mitigates much of the risks typically associated with exploration projects. As the operator, Rio Tinto is not only covering the cost of drilling, but it is drilling the project as well, lending its extensive operational expertise, both of which free the junior exploration company from the burden of the financing risk and operation risk for this project.

Investors who buy shares of American Pacific Mining see this as an opportunity to benefit from the added reassurance of a major mining company partnership while paying junior mining stock prices.

Michael Gentile Becomes Strategic Investor in American Pacific Mining

One investor of note is Michael Gentile, CFA. The former portfolio manager for the $2 billion Montreal-based Formula Growth Fund bought a near 20% stake in the company earlier this year, becoming a strategic investor.

During his 15-year tenure at the Formula Growth Fund, Gentile focused on finding promising junior mining and natural resource companies to add to the fund. Since retiring, Gentile has become an active strategic investor, owning a top 5 stake in more than 15 small cap mining companies.

The latest small cap mining company to be added to his portfolio is American Pacific Mining, but the strategic investor with his decades of mining investing expertise is also a strategic advisor to Arizona Metals (OTCMKTS: AZMCF). Headquartered in Toronto, Arizona Metals is a mineral exploration company whose stock has skyrocketed in the past 6 months from $0.76 at the close of 2020 to over $4 in June amid news of new gold-zinc discoveries and the close of a $21,000,000 bought deal offering.

With the combined track record of due diligence in identifying small cap mining stocks for the Formula Growth Fund and the success of the exploration companies currently in his portfolio, Michael Gentile’s investment in American Pacific Mining is seen by many investors as another strong signal of the junior exploration company’s growth potential.

For investors who are new to mining stocks, finding the right ones for your portfolio can be a daunting task as mining company business models are drastically different from other businesses and the mining industry can be hard to evaluate without extensive expertise in the industry. Tracking the investing activities of major mining companies like Rio Tinto that do extensive due diligence before investing in a project and aligning with strategic investors possessing insider knowledge of the industry are two of the best ways to work around those challenges.

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© 2021 Benzinga does not provide investment advice. All rights reserved.

Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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