Members of our Inner Circle service often ask for our advice on stocks they are thinking of buying that we don’t cover in our newsletters. These companies range from large multinational companies to the most speculative penny stocks.

For example, an Inner Circle member recently asked our advice on Gippsland Resources. The Australia-based penny stock’s two main properties are both located in Egypt, and contain deposits of tantalum, a rust-resistant metal with many industrial uses.

To give you a sense of how my Inner Circle service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.

Q: Pat, would you have an opinion on Gippsland Resources, traded on the Australian stock exchange?

A: Gippsland Resources, $0.05, symbol GIP on the Australian exchange (Shares outstanding: 626.3 million; Market cap: $30.7 million Australian, www.gippslandltd.com), is focused on developing its 50%-owned Abu Dabbab-Nuweibi and Nuweibi tantalum/tin projects in Egypt. The Egyptian government owns the other 50%.

Rust-resistant tantalum is used to make light-bulb filaments, electrolytic capacitors (which are used in electrical circuits), lightning arresters (which protect electrical equipment from high voltage caused by lightning), nuclear-reactor parts and some surgical instruments.

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Tantalum prices have moved up lately, from $38 U.S. a pound in December 2009 to a recent high of $120 U.S. Higher sales of electronic devices are part of the reason for the price rise. But most of the increase results from U.S. government pressure on manufacturers to identify their tantalum sources. That’s because 35% of the global tantalum supply is believed to come from illegal, or “conflict,” mines in the Democratic Republic of Congo. Tantalum produced from those mines is commonly known as “blood tantalum” or “coltan.”

Tantalum prices may stay high in the short term, but higher prices will likely prompt producers to restart dormant mines and push forward mothballed development projects. That would lower tantalum prices in the long term.

Gippsland recently sold 80 million shares for $0.04 each. That increased the penny stock’s shares outstanding by 15%, and raised $3.2 million.

That’s enough to let Gippsland keep developing its properties, but the company will likely have to keep issuing shares at low prices to keep its projects moving forward. Operating in Egypt also entails above-average political risk.

Our buy/sell/hold advice on Gippsland, based on the prospects for the penny stock’s tantalum projects and the political situation in Egypt, is only available to members of our Inner Circle. You can’t get it anywhere else! (Note: If you are a current Inner Circle member please click here to view Pat’s recommendation. Be sure to log in first.)

If you’re looking for authoritative advice on investment issues, or fundamental analysis of investments—including penny stocks—you’re considering buying, you should join Pat McKeough’s Inner Circle. It’s Canada’s most exclusive investment group.

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