Looking for mining’s winners

With gold prices near 25-year highs, more investors are searching for stocks that could benefit if the surge continues, such as shares of small and midsize gold producers that haven’t advanced as much as those of larger gold companies.

Many of these smaller mining companies are known as risky bets, because of high production costs and, in some cases, challenging pasts. That makes it a more difficult game for investors, though one with a potential big upside if gold stays at these high levels.

As gold prices have climbed, to $559.70 an ounce Thursday, investors have flocked to shares of the largest producers, such as Newmont Mining Corp., up 40 percent in the past year, and Freeport-McMoRan Copper & Gold Inc., which has soared 75 percent. Focusing on these companies has made sense: They sport the lowest cost of production, so every time gold jumps a dollar, these producers see added profits.

Some investors and analysts say gold is now expensive enough to enable even less-efficient producers to benefit. Some of these investors have been focusing on Bema Gold Corp., a Vancouver miner with a $1.7 billon market value, whose stock price has risen 29 percent in the past 12 months. Those with even greater risk tolerance are looking at Hecla Mining Co., a Coeur d’Alene gold and silver producer with a market value of $600 million that has fallen more than 14 percent in the past year. Thursday, Bema closed at $3.70, up 0.82 percent, on the American Stock Exchange. Hecla shares closed up 14 percent at $5.02 in composite trading on the New York Stock Exchange.

On the heels of the recent acquisition of Placer Dome Inc., by Canadian miner Barrick Gold Corp., some analysts have pointed to Bema and other midsize players such as Eldorado Gold Corp., and Yamana Gold Inc., as possible takeover candidates.

“There’s consolidation going on in the industry,” says Bema Chairman and Chief Executive Clive Johnson. “The big companies aren’t making major discoveries, and if the bull market continues you’ll see more of it.”

Some hedge funds that are focusing on these smaller companies note that there often is a delay between the rise of a commodity — and an accompanying climb in the price of shares of the largest producers — and the catch-up rally that follows among the smaller companies with more challenges. That is why small oil and gas exploration-and-production companies have rallied only in recent months, well after oil prices and the biggest companies soared.

The enthusiasm for gold could ebb if fears of inflation subside. And the smaller miners aren’t exactly closing in on windfall profits. Hecla is using profit from higher gold and silver prices to fund increased spending on exploration. It had 12 years of losses end in 2002, a rough period for the business in which Hecla’s former CEO, Art Brown, said the company was “close to bankruptcy.”