My Favorite “Unconventional” Gold Play (Johnson Matthey Is A Buy!)
Gold mining aint easy.
From “Big Gold” to junior miners, pulling ore out of the ground for a profit was a tough task over the past two years.
Rising mine costs and lower precious metal prices were a disaster for many miners — something you can easily see with a quick glance at share price over the past two years. It’s been a bloodbath.
However there has been one “unconventional” gold player that’s been making it work.
While the price of gold has dropped 27% and the miners are off some 60%, this company is up over 74%. What’s the secret recipe to success? Let’s take a look…
Earlier this year I was kicking rocks in Nevada, where you’ll find the world’s second largest gold field.
I was in Nevada visiting an up-start gold mining operation, which gave me a great look at what miners have to do to make a buck these days. In short, there’s not many “bonanza” style deposits (where you can pluck a nugget from the pile.) There are, however, a growing amount of deposits that need high-tech science and chemistry to eke out a profit.
But the mining operation wasn’t where the opportunities stop. Not by far!
In Nevada, I quickly learned about an unconventional way to play precious metals…
You see, when local miners process their own ore they come up with a semi-refined product called “dore.” Dore is an alloy that contains gold, silver and some other imperfections.
At most mining operations, large or small, dore is the end product.
Where’s this dore go from there? Glad you asked…
Follow The Golden Highway!
To turn that dore into fungible, marketable gold and silver (or platinum) miners need to send their dore to a refiner.
In Nevada, most of the dore heads east on Route 80, which runs from Elko, NV — home of the Carlin Trend — to Salt Lake City, UT. By no stretch of the imagination could we say that Route 80 is America’s “golden highway!”
Salt Lake City is home to one of America’s largest gold and silver refiners: Johnson Matthey Gold & Silver Refining, a wholly owned subsidiary of Johnson Matthey PLC (JMPLY.)
Johnson Matthey is NOT a miner, but it IS a great, unconventional way to play precious metals.
Off the bat, the company is the largest global, full-service refiner of precious metals in the world. So when miners need to get their gold, silver or platinum to market, they fill out a packing slip and send their dore to Johnson Matthey.
From there, Johnson Matthey can service the London Bullion Market, the CME Group the Tokyo Exchange and the Dubai Commodities Center. Simply put, there’s no need for miners to sell gold at a discount, instead it’s on the global market (heh, probably ending up in China’s gold hoard!)
From an investment standpoint the refining business has some advantages over miners. Instead of worrying about cost over-runs and the price of bullion, a refiner just worries about volume — and with a worldwide mining craze still in full swing the volume is palpable.
Add it all up and share price for this refiner has easily outpaced gold since the market recovery began in early 2009.
Better yet, even as the price of gold dropped in the past two years, Johnson Matthey was still making money and share price was on the rise.
And like I hinted above Johnson Matthey also beat the pants off of miners — using the gold miners ETF (GDX) as our guide, miners were off over 60% while Johnson Matthey jumped 74%.
Going forward there’s still plenty of upside for this company, too. Since the time of my Nevada trip in late spring, shares of JMPLY are up over 15%. Part of that rise is due to the precious metal refining business, but a lot of it comes from another big profit center…
Besides refining, Johnson Matthey is a huge player in the platinum/palladium and catalytic converter market. Indeed, the same forces that will light a fire under the platinum and palladium markets are also supporting the fundamental case for Johnson Matthey’s catalytic converter business.
There’s huge upside in this market. In fact, along with the expected general rise in platinum and palladium prices Johnson Matthey could be a backdoor way to play a European recovery.
With more cars heading into Asian, American and now European markets the demand for platinum- and palladium-lined catalytic converters is heading higher.
And it all up and you’ve got a two-pronged way to profit. This unconventional gold player is a buy!
Keep your boots muddy,
Original article posted on Daily Resource Hunter