These 2 miners are positioned for further outperformance

Independence Group NL and Western Areas Ltd look the pick of the mid-cap miners.

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In a January article I wrote that Independence Group NL (ASX: IGO) and Western Areas Ltd (ASX: WSA) were two of the better mid-cap resource plays. Since then they have risen 33% and 41% respectively. More importantly both these companies have their businesses singing with increasing production and decreasing costs. With the half-yearly reports released, it's a good time to review the potential of these two stocks.

Independence Group has a 30% interest in the extremely exciting Tropicana gold mine, 100% of the Long nickel mine and 100% of the Jaguar zinc mine. All three mines are low cost and the tenements involved are highly prospective; however Tropicana is definitely the diamond in the pack. Described by Ashanti Gold's conservative CEO as a " tier-one asset which we believe only scratches the surface of a new gold district" – Ashanti owns 70% of the joint venture – Tropicana is situated close to the Great Victoria Desert.

With the joint venture tenement comprising 10,500 square kilometres of this promising region, exploration has been mainly confined to the immediate area around the producing mine and several high grade intersections have been made. There seems little doubt that proven and probable reserves will continue to increase substantially over the next few years.

With estimated earnings per share of 48c in FY2015 and a 26c fully franked dividend, Independence Group ($4.20) is selling at prospective 2015 price earnings of 8.75 and a fully franked yield of 6.2%. In my view, this stock still has plenty to offer over the medium and long term.

Nickel miner Western Areas received a couple of free kicks recently – the Indonesian ban on nickel exports and the possibility of economic sanctions against Russia. Irrespective of this Western Areas is Australia's lowest cost nickel producer and well placed to deliver solid earnings growth over the next few years. Major assets include the high-grade Flying Fox and Spotted Quoll nickel mines, the Cosmic Boy concentrator and promising exploration prospects in Australia, Canada and Finland.

A current $104m capital raising will strengthen the balance sheet and enable further expansion options. After adjusting for the share issue Western Areas ($3.41) is selling on a prospective 2015 price earnings ratio of 11.4 and a fully franked yield of 2.6%. One big cloud with this stock is the record stockpile of nickel sitting in warehouses and the continuing slowdown in the Chinese economy (nickel's major use is in stainless steel production). Western Areas does need a steady rise in the nickel price to reach estimates.

Foolish takeaway

As in any other cyclical industry resource companies have to be well managed in order to survive the poor times and gain the full benefit of the good times. Both Independence Group and Western Areas have highly productive low cost assets; low debt and the management capacity to develop new opportunities – in my view they are positively placed for their futures.

Motley Fool contributor Peter Andersen owns shares in Independence Group and Western Areas

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