Gold Stocks (GDX) Rally, Platinum Stocks to Follow?

GOLD STOCKS NEWS – Gold stocks rallied Tuesday as the Market Vectors Gold Miners ETF (GDX) climbed $1.33, or 2.5%, to $55.07 per share.  The advance in gold stocks and the GDX was fueled by gold bullion, which recaptured the $1,500 per ounce level.  Gold stocks in Canada moved higher as well, with the S&P/TSX Global Gold Index adding 1.3% alongside the GDX.

Despite today’s strength in gold stocks, the sector has substantially underperformed gold bullion in 2011.  Year-to-date, the GDX is down 10.7%, compared to a 6.2% rise for the spot gold price.  Barrick Gold (ABX) and Newmont Mining (NEM), two of the world’s largest gold producers, have fallen 13.3% and 10.9%, respectively.

With gold stocks continuing to lag the yellow metal, other precious metals have garnered increased attention.  Platinum, which not only provides a hedge against ongoing currency debasement, but also offers exposure to economic growth in emerging markets through its industrial component, has been the subject of a number of bullish reports by industry analysts.

GFMS, the world’s leading metals consultancy firm, predicted in its annual Platinum and Palladium Survey that platinum will be “comfortably north” of $1,900 per ounce by the end of this year.  With the metal presently trading near $1,740 per ounce, the forecast represents a substantial rise from current levels.

While there are many publicly-traded gold stocks around the world, only a small number of platinum-focused companies exist.  Platinum Group Metals (PTM.TSX, PLG: AMEX) controls a large land package on one of the most prolific platinum-producing belts in the world.  Since October 2008, shares of PLG have surged 198%, providing investors with significant leverage to the platinum price.

This morning, Platinum Group Metals announced a construction update on its Western Bushveld Joint Venture (WBJV) Project 1 Platinum Mine, its flagship asset in which it holds a 74% interest.  The company reported that development plans are advancing on budget and within three weeks of project schedule.  Construction work of approximately 30,000 man-hours, including roads, box cut excavation for the declines and site infrastructure has progressed safely with no loss time incidents.

Platinum Group Metals noted that JIC Mining Services of Johannesburg, South Africa has been awarded the contract to develop twin 1,200 meter underground decline tunnels into the center of the WBJV Project 1 platinum deposit.  In addition, JIC is operating as one of the underground mining contractor at the producing Bafokeng Rasimone Platinum Mine (BRPM), immediately adjacent to the WBJV Project 1.  The firm also operates as underground mining contractor on another six platinum mines, two chrome mines and one uranium mine in South Africa, employing 7,400 people.

R. Michael Jones, President of Platinum Group commented that “The estimated primary underground development cost based on the JIC bid is below our feasibility study estimate. We have been able to utilize the actual contract pricing for primary decline development, power and water delivery and initial civil site work to add confidence to our feasibility model for banking discussions.  As a result of the positive PGM outlook, attractive margins of the project and the ongoing project implementation, banking interest has been strong.”

Looking ahead, Platinum Group Metals noted that the WBJV Project 1 is advancing toward a 275,000 ounce per year platinum, palladium, rhodium and gold planned production profile.  Full commercial construction is budgeted at $443 million and is planned to involve project loan financing upon the approval of a full mining right. The mining right application was made in April 2011 and once granted, initial commercial production is expected by late 2013.

In late morning trading on Tuesday, notable gold stocks moving higher included GDX components Eldorado Gold (EGO), IAMGOLD (IAG), and Kinross Gold (KGC).  EGO, IAG and KGC were three of the top performing names in the gold stocks sector, with gains of 4.9%, 3.5%, and 4.5%, respectively.