Why I Doubled Down on Brigus Gold

No matter how well you think you know your stock, you can always know it better.

I thought I knew Brigus Gold (AMEX: BRD  ) , but only after visiting the company's flagship gold mining complex last week did this enticing growth story leap off the page and come to life as a clear top pick among the slew of alluring investments in gold. That journey is the subject of this Motley Fool exclusive.

Smack in the heart of gold country
From the moment you arrive in the town of Timmins, Ontario, there is no mistaking it: You've arrived in gold country. The mining-themed mural at the airport, the historic mine-shaft headframes on the horizon, a billboard for an exploration drilling contractor, and Goldcorp's (NYSE: GG  ) sprawling Porcupine mine and mill complex on the outskirts of town; everything you see speaks to the legendary productivity of the Destor-Porcupine Fault Zone. This 250-kilometer geological trend has yielded more than 70 million ounces of historical gold production, which today would ring the register at more than $100 billion!

Brigus Gold's producing Black Fox Mine, the nearby high-grade discoveries within the Pike River and Grey Fox project areas, and the Black Fox Mill some 20 kilometers to the west all lie along this proven gold-rich structure. The company also boasts noteworthy mineral assets in northwest Saskatchewan, with 1.09 million gold-equivalent ounces of measured and indicated resources, and will retain enticing upside exposure to recently monetized assets in the Dominican Republic and Mexico. But the Black Fox complex is the springboard for the company's imminent growth and the sole focus of this discussion.

Golden ducks in a row
I chose Brigus Gold for inclusion within my top 10 gold and silver stocks for 2011 because, like my top pick AuRico Gold (NYSE: AUQ  ) (formerly Gammon Gold), I felt the company epitomized the kind of dramatic turnaround story in the making that offers timely opportunities for investors to build long-term exposure to gold at depressed valuations. Corroborating my observation, the gold gurus at Sprott Asset Management had also initiated a position, which they subsequently increased during the first quarter of 2011. Under new direction from CEO Wade Dawe following the mid-2010 merger between Apollo Gold and Linear Gold, and following the appointment of Richard Allan -- former senior director of mining for Barrick Gold (NYSE: ABX  ) -- as chief operating officer, a clearer strategic path came into view last year for harnessing the obvious potential of the complex to enhance shareholder value.

Throughout last week's site visit, it became clear that multiple productivity enhancements and pending developments are lining up simultaneously to offer an array of powerful catalysts that I believe will drive Brigus Gold's stock to substantial gains over time. Following a transition during the first quarter, from phase 1 to phase 2 of open pit mining (and the associated removal of overburden during the initial stages thereof), the Black Fox open pit is back into the ore. This is good news for gold royalty company Sandstorm Gold (OTC BB: SNDXF.PK) as well, which holds a 12% gold stream on the Black Fox mine.

At center is phase 2 of open pit mining at Black Fox, which began producing ore in late March 2011. A large third phase of production awaits in the direction of the treeline at left. The gold-bearing ore is the lighter-colored material in the background behind the darker waste material in the foreground.

Descending to the floor of the completed phase 1 pit, and the current portal to the underground mine, I encountered a steady parade of massive 100-ton Caterpillar (NYSE: CAT  ) haul trucks (Brigus has a fleet of six) carrying high-grade ore up to the surface. There was a team of contractors busy developing additional mining stopes to rapidly expand the number of available underground drilling faces, and the Brigus' miners extracted ore and built out the underground infrastructure; they all worked simultaneously through this subterranean world without impeding each others' progress. I couldn't help comparing the operation to a beehive, where swarms of able individuals conduct their varied operations within a surprisingly orchestrated opus.

These Caterpillar model 777 100-ton haul trucks carry the ore out of the pit, where it is transferred to road-ready trucks for transport to the mill for processing.

Ore is presently emerging from two mining faces, and COO Rick Allan described the rapid expansion to as many as 12 available faces as a key step in optimizing the efficiency and flexibility of underground mining operations. I forecast steady incremental improvements to underground production as the company progresses toward that goal.

The colored portion of this underground development plan indicates the extensive work that has been completed to date, while the array of successive mining stopes still awaiting development speaks to the years of steady underground production that still lie ahead for this portion of the Black Fox complex.

Preparing for the next round of growth
Brigus Gold's Black Fox mill is already capable of processing 2,000 tons of ore per day and recovering an impressive 93% or more of contained gold. With growing mining capacity in the works, Brigus will first pursue a phase 1 expansion plan for the mill that includes the addition of a concentrator circuit, additional leach tanks, and a new circuit to recover gold from "carbon fines" recovered from the leach circuits.

In conjunction with the envisioned fast-track to production for the high-grade darlings of Brigus' ongoing exploration campaign -- the Contact Zone and the newly discovered 147 Zone -- the company is mulling the addition of a SAG mill to substantially increase throughput capacity for the growing Black Fox complex.

The rapidly expanding gold deposits at the Contact and 147 zones, and the additional targets nearby, are of particular interest to Brigus Gold investors. A pre-existing underground portal and ramp at the adjacent historic Gibson deposit offers Brigus the opportunity to fast-track permitting and underground development to potentially initiate production in the span of about one year. Wardrop Engineering is already conducting resource modeling in preparation for an initial resource estimate for the Contact Zone expected for the fourth quarter of this year. The 147 Zone has quickly established a strike length of 250 meters and remains "wide open" to expansion in all directions with five exploration drills active in the zone. Recent drill highlights include 3.66 grams per ton over an impressive width of 66.85 meters, and bonanza grades as high as 136.18 grams per ton (over 4.43m). With multiple assays pending on recent exploration drilling, I anticipate a series of potential catalysts for share-price appreciation over the coming months as the significance of these high-grade deposits -- and the strong potential for fast-tracked production -- comes into clearer view.

Light from my camera's flash is reflected by plentiful visible gold in this segment of exploration drill core from hole GF11-178, from the exciting new 147 Zone discovery, which assayed an eye-popping 136.18 grams per ton of gold over 4.43 meters.

As with any carefully vetted investment that warrants top billing, a truly successful growth story begins with its people. Looking back at the example of Endeavour Silver (NYSE: EXK  ) , I had already been convinced of the company's strong organic growth potential for years before I had a chance to speak with CEO Bradford Cooke, but that encounter brought me to a new level of confidence in what proved to be a monumental growth trajectory. At every turn, I found Brigus Gold's highly capable team visibly excited by the company's growth opportunities and eager to convert the plan into action. This for me was the final step in determining that Brigus Gold deserved an increased allocation within my own basket of gold and silver mining stocks and why I recently doubled my long-term holding in this exciting growth stock.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of AuRico Gold, Brigus Gold, Endeavour Silver, Goldcorp, and Sandstorm Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (58)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2011, at 3:44 PM, Jbay76 wrote:

    Great article and one that leaves me in the middle-ground. I don't know what's better, invest in BRD as the miner of potential or SNDXF. When I think of SNDXF, I think of a potential SLW, and now with your analogy above, I think of BRD as a potential EXK. With limited funds yet to be procured, its a difficult to determine which way to swing the bat, so to speak...

  • Report this Comment On June 17, 2011, at 3:54 PM, Jbay76 wrote:

    On a more important note, I see in their Q1 report that the total cash cost for an ounce of gold sold was $1,097.00, and that they sold their gold at an average price of $1356.00. While they state their cash costs were impacted temporarily due to construction costs for the under ground mine, I am wondering if BRD mentioned what type of reduction in cash costs per gold ounce sold investors can anticipate and if they gave a time frame for that reduction? I assume as production ramps up, cash costs should go down.

    I wonder, can one look at cash cost increases due to mine improvements like a depreciating asset?

    My ability to ask these questions and understand their implications is largely due to you Sinch, many thanks!

    J

  • Report this Comment On June 17, 2011, at 4:17 PM, Jbay76 wrote:

    I just read this and thought it woudl be good to post here, this is from BRD's Q1

    2011 Outlook

    The Company is projecting 2011 production of between 73,000 and 80,000 ounces of gold at a total cash cost of $575 - $625 per ounce. Brigus projects increasing gold production quarter over quarter during 2011 with higher-grade underground ore augmenting open pit ore for a total throughput of 2,000 tpd at the Black Fox Mill.

    Black Fox is expected to produce between 16,500 and 18,000 ounces of gold in the second quarter of 2011 and to reach a steady state annual production level of 104,000 ounces in the third quarter of 2011.

    Total capital expenditures in 2011 are estimated at $37.0 million, mainly for underground development and underground mining equipment at Black Fox. Exploration expenditures for surface drilling are estimated at $11.0 million for 2011.

    At the Goldfields Project in Saskatchewan, the Company expects to complete an updated National Instrument (“NI”) 43-101 technical report during the second half of 2011.

  • Report this Comment On June 17, 2011, at 4:20 PM, XMFSinchiruna wrote:

    JBay,

    That cash cost figure is of no lasting consequence whatsoever, since it reflects a quarter in which both portions of the mining operation were undergoing extensive development activities that temporarily hampered output.

    Look for cash costs to trend back toward the region of $600 per ounce very quickly, and to trend a bit lower still (to about $550 per ounce) for 2012.

  • Report this Comment On June 17, 2011, at 4:29 PM, AndreHaeff wrote:

    Thanks to Christopher Barker for this report based on his on site direct view of the Brigus

    Black Fox Mine. Its value is that it provides some concrete confirmation of the descriptions and data which we only read about.

    Andre Haeff 6/17/2011

  • Report this Comment On June 17, 2011, at 6:20 PM, rjcook43 wrote:

    I think SNDXF could become the next royal gold.

    If you see were SNDXF is at this time they have six streaming contracts and are ahead of the game as were royal gold was at the sametime. As for SLW the ex CEO from SLW is the CEO of Sandstorm Gold. I have been in SNDXF since it was at .62 a share and see big gains coming in the months ahead and I think they are not to far away from being listed on the AMEX.

  • Report this Comment On June 17, 2011, at 8:25 PM, tommylad wrote:

    Thank you Christopher Barker for another well

    written and insightful article. This is the type of

    information that will help a newbie investor like

    myself come to an informed decision. I'm

    excited about investing in my first gold miner!

  • Report this Comment On June 22, 2011, at 9:19 PM, sammy1975 wrote:

    This is awsome

    By sept 15 i think this will be at 2.50

  • Report this Comment On June 23, 2011, at 2:07 PM, XMFSinchiruna wrote:

    Click here for further discussion of Brigus Gold on my CAPS blog:

    http://caps.fool.com/Blogs/why-i-doubled-down-on-brigus/6052...

    And click below for a separate blog post that includes a close-up photo of Brigus Gold's latest bonanza drill result of 4,165 grams per ton from the expanding 147 Zone, which coincided with a broad range of high grade intercepts both near-surface and at depth.

    http://caps.fool.com/Blogs/what-4165-grams-per-ton-of/607017

  • Report this Comment On September 20, 2011, at 5:31 PM, Retirefunds wrote:

    Brigus has been in my portfolio since the spring.

    Good choice.

  • Report this Comment On October 22, 2011, at 11:26 PM, TruffelPig wrote:

    Right now it is really cheap - I am getting some at incredible low price.

  • Report this Comment On October 26, 2012, at 8:57 AM, jargonific wrote:

    The photo is sad though. The earth completely ripped open. Toxicity resulting from the gold manufacturing process is also ruining lives near these mines. But hey, it's the global monetary system at stake... actually if you look at these lands carefully you see something interesting. They were all named after Native American people.

    I'm not about denying people their ability to earn retirement income. I just long for justice in my lifetime. The South African protest killings ripped into my heart and left me with sorrow for the day when Apartheid... (now of the financial kind) would really end.

  • Report this Comment On October 26, 2012, at 8:58 AM, jargonific wrote:

    As to the economic climate, Dollar rising at the moment. Gold down.

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