Stocks to Buy: This Cheap Metals Play Has 10-Bagger Potential

The recent selloff in metals has made some opportunities for investors to scoop up stocks to buy at record discounts, and it's not just in gold and silver-related plays.

Although it is not as heavily traded as the shinier metals or treated as a safe haven asset, copper has also been slipping.

Copper prices recently fell to a 17-month low as more efficient mining practices has increased supply and demand has slowed. According to the Bureau of Metal Statistics copper supply will top demand by 97,000 tons in 2013.

The rise in the dollar has also pressured prices as copper is priced and traded in dollars.

This has caused a price plunge in copper-related stocks, giving some huge upside potential.

In fact, this tumble may be creating a huge opportunity in a special situation stock that is owned by some of the world's most successful investors. It's a chance to own a company with large reserves of copper that are worth far more than the current stock price.

Stocks to Buy: Low-Price Shares, High-Value Assets

NovaCopper Inc. (NYSEAMEX: NCQ) is a base metals exploration company focused on developing specific mineral properties.

NovaCopper was spun off from NovaGold Resources Inc. (NYSEAMEX: NG) back in 2011.

Investors with an interest in gold stocks quickly sold off the spun-off shares of the copper exploration company, and the NovaCopper stock has tumbled around 60% since the spin off was completed to only $1.85 per share now.

But the company's prospects are much stronger than the stock price, and analysts have a one-year price target of $4.95 - a 157% gain.

Looking even longer term, this stock has the potential to be a proverbial ten-bagger when the necessary roads are built and the mines become operational.

That's because it's holding these hundreds of thousands of acres in resource-rich land...


The company has two projects in Alaska with deposits of high-grade copper already identified. The company signed an agreement with NANA Regional Corporation in 2011 to combine their resources to form a 535,000-acre land package to explore and produce metals including copper as well as potentially lead, zinc and silver.

The initial reports from outside consultants indicate that the land holds substantial deposits of minerals and metals that will be worth far more than the current capitalization of the company, which is $100 million.

The Preliminary Economic Assessment prepared last year for the company shows that at average long-term metal prices, the Arctic deposit that is part of its landholdings contains metals with a net present value of $757 million. Using the higher metal prices of last year the value of the landholdings reached $1.3 billion.

The Bornite deposit 26 kilometers away from the Artic also shows substantial metal resources that can eventually be monetized by the company.

Remember, there are always risks with mining operations, especially smaller ones like NovaCopper.

Production is probably at least four years away and there still has to be a road permitted and built to the mining sites. The Alaska Industrial Development and Export Authority must approve the $300 million road before the mines can start production.

However, Alaska is a very mining friendly state so it is highly likely the road receives a green light. Mining revenues will repay the road's costs.

And when NovaCopper's mines come into full production in four to five years, it is highly likely that the economy will have regained its footing and the price of copper will be substantially higher than it is now.

Smart Money Owns NovaCopper

When NovaCopper spun off back in 2011, there were two groups of shareholders that sold immediately: gold stock investors who wanted no part of a copper company, and institutions that didn't want a microcap development stage mining company.

However, some very astute investors held onto their shares and some have even added to their positions. The company's largest shareholder has kept shares and exercised warrants to acquire more. Electrum Strategic Resources L.P. now owns 27% of the company.

Legendary value investor Seth Klarman acquired shares in the spin off and has added to his position as sellers pushed the price down. He now owns 8.7% of NovaCopper. Management also has a vested interest in the fate of the company, and owns warrants to buy shares at around $3.10 - well above the current stock price.

For more companies on our "stocks to buy" list, check out this cheap aircraft-related company due for a huge rally.