Top 10 Gold Stocks for New Money Now, Part 2

Amid a welcome patch of near-term weakness for gold mining and exploration stocks, this Fool recently became an active buyer in an array of gold stocks that I believe offer top-quality exposure to an anticipated resumption of the metal's multiyear bull-market blitz.

As an update to my initial top 10 picks for gold and silver in 2011, this two-part series highlights those elite gold stocks that I currently consider the most opportune vehicles for new gold investment. Accordingly, these stocks also figure prominently within my own investment allocation into precious metals, and I personally own shares of all 10 selections. Part 1 of this series highlighted selections 6 through 10 from my golden list, while my top five picks are featured below:

5. Chesapeake Gold (OTC BB: CHPGF)
As a development-stage gold company that so far lacks a listing on a major U.S. exchange, Chesapeake Gold has diligently grown its bounty in relative obscurity. As just reward for venturing onto the "pink sheets" for Chesapeake Gold, investors will gain exposure to one of the world's largest undeveloped gold deposits. Chesapeake's Metates project combines an astonishing 17.2 million ounces of measured and indicated gold resource with a monumental silver kicker of 467 million ounces of silver! Together, these yield 24.4 million gold-equivalent ounces at an average grade of 0.81 grams per ton.

A recently updated preliminary economic assessment assigned the project a net present value of $2.9 billion (5% discount rate) assuming an immensely conservative gold price of $900 per ounce. The plan envisions annual production greater than 1.1 million gold-equivalent ounces over a 20-year mine life. Although construction will be capital intensive with a price tag of $3.16 billion, it could take only four years to recoup that cost. Mackie Research maintains a 12-month price target of nearly $39 for the stock, which implies multibagger upside potential from Tuesday's $11.50 share price.

4. Northgate Minerals (AMEX: NXG  )
I've been reminding Fools to consider positioning for Northgate Minerals' golden explosion for months, and patient gold investors continue to await the day when Northgate's powerful prospects are more fully reflected in the shares. Construction of the critical Young-Davidson mine continues right on schedule, and first production now stands about two quarters away. That means Northgate is reasonably likely to achieve its 2012 production target of 300,000 ounces, followed by 350,000 ounces in 2013. Meanwhile, Northgate recently drilled "one of the best holes ever intersected on the property" -- featuring 4.31 grams of gold per ton over a very wide 79.6-meter segment -- from a new discovery zone outside of the existing 2.8 million-ounce reserve.

If Young-Davidson were Northgate's sole asset, these shares would still be undervalued here at about $2.60 per share. With a preliminary assessment looming for the reworked Kemess Underground project, a new drill program at the Awakening Gold project in Nevada, and two operating gold mines in Australia, Northgate figures among the clearest bargains in the gold patch.

3. AuRico Gold (NYSE: AUQ  )
Everything has changed for AuRico Gold (formerly Gammon Gold) since I featured the miner as my top pick for 2011. Sporting a new name, a new look, and more importantly a new portfolio of assets featuring the profitable El Chanate mine, AuRico Gold has already achieved multiple elements of the turnaround story that formed the core of my investment thesis. Accordingly, the shares have easily outperformed an impressive array of gold miners so far this year. But, like CEO Rene Marion, my focus remains fixed on the future of the company and the achievements yet to come.

I have highlighted AuRico's pattern of consistent exploration success as a cornerstone of the company's attractiveness, and recent drill results from both Ocampo and El Chanate punctuate the miner's organic growth potential. At Ocampo, AuRico encountered an extremely high grade of 12.36 gold-equivalent ounces (GEOs) across 26.8 meters within the Picacho open pit. With a pending preliminary study of the Guadalupe y Calvo deposit, a fruitful exploration campaign, and continued optimization of operations, I continue to perceive multiple catalysts to sustain AuRico's growth momentum.

2. Primero Mining (OTC BB: MNOCF)
Primero has been mired in unjustified weakness ever since its inception with the purchase of Goldcorp's legendary San Dimas mine. The lack of a listing on a major U.S. exchange is not helping matters, but the company intends to launch such a listing during the third quarter. Goldcorp (NYSE: GG  ) was so confident that "the true potential of the deposits are neither fully realized nor reflected in the stated reserves and resources," that the company agreed to pay a penalty to silver stream holder Silver Wheaton (NYSE: SLW  ) for any shortfall beneath 220 million ounces of payable silver production by 2031.

Primero's stock appears to trade as though the stated reserves of 886,090 ounces of gold (plus 62 million ounces of silver) presented a realistic limit to life-of-mine production, whereas a closer analysis reveals those figures are little more than a baseline. With a recent market capitalization of $315 million -- or $185 million beneath last year's founding transaction price -- this valuation is frankly a joke.

1. Brigus Gold (AMEX: BRD  )
My recent visit to Brigus Gold's Black Fox mining complex in Ontario left me so utterly confident in the company's gathering growth momentum that I doubled my personal holding and encouraged my readers to dig into this remarkable turnaround story. A rocky path to production for predecessor Apollo Gold may have damaged the mine's reputation among investors, but under Brigus Gold this operation is rapidly hitting its stride. Brigus recently initiated a mill expansion that will bring capacity to 2,200 tons per day, and is mulling a subsequent expansion to 3,500 tons per day to coincide with anticipated production from some remarkable new gold discoveries within the Black Fox complex.

Brigus released a new round of assays from exploration drilling at the exciting 147 Zone, including a breathtaking bonanza intercept of 4,165 grams per ton (133.9 ounces per ton!) over 1 meter; while nearby holes confirmed significant continuity of high-grade gold mineralization at depth (including one 50-meter interval grading 3.96 grams per ton). Click here to see what 4,165 grams per ton of gold looks like in a drill core. The 147 Zone continues to reveal outstanding development potential, facilitated by pre-existing underground infrastructure from historical underground mining nearby, and the deposit remains open to further expansion in all directions.

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, Chesapeake Gold, Goldcorp, Northgate Minerals, Primero Mining, and Silver Wheaton. 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's disclosure policy belongs on a list of the top 10 policy statements that moonlight as expert yodelers in their spare time.


Read/Post Comments (20) | Recommend This Article (61)

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 July 05, 2011, at 5:37 PM, tdonb wrote:

    Glad to see Primero made the list.

  • Report this Comment On July 05, 2011, at 5:47 PM, XMFSinchiruna wrote:

    Primero did better than just "making" the list ... it's #2! :)

  • Report this Comment On July 05, 2011, at 10:24 PM, skypilot2005 wrote:

    http://www.primeromining.com/NEWS--Events/News-Releases-Deta...

    http://www.primeromining.com/NEWS--Events/News-Releases-Deta...

    http://www.primeromining.com/NEWS--Events/News-Releases-Deta...

    7/5/11

    "We are pleased to have received the VAT refund within the expected 12 month period," stated Joseph Conway, President and C.E.O. "We continue to build on our balance sheet strength, having $65 million in cash at the end of the first quarter and building on that with cash flow from operations. This VAT refund provides a capital addition of approximately $17 million that further improves our financial flexibility. The Company is well positioned to meet all exisiting financial obligations while continuing to expand San Dimas. Primero remains focused on doubling production at San Dimas by 2013 while being open to accretive growth opportunities."

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On July 05, 2011, at 10:48 PM, skypilot2005 wrote:

    If anyone has problems with the "links" above, they are all here:

    http://www.primeromining.com/

    http://www.primeromining.com/NEWS--Events/default.aspx

    disclosure:

    I've owned Primero for sometime, now.

    Sky Pilot

  • Report this Comment On July 05, 2011, at 10:58 PM, skypilot2005 wrote:

    Sinch,

    What do you think of Silvermex Resources?

    Have you had a chance to look at it?

    Thanks,

    Sky Pilot

  • Report this Comment On July 06, 2011, at 8:21 AM, XMFSinchiruna wrote:

    skypilot, thanks as always for the links! :)

    Primero is my largest equity holding among gold producers. The valuation gap is enormous, and the scale of the property's potential for reserve expansion breathtaking. The company is in extremely capable hands with CEO Joe Conway, who built my #9 selection IAMGOLD into the treasure it remains today.

    I am very bullish on Silvermex, and did increase my holding during the recent weakness. There again, you have a proven senior management team culled from Hecla Mining that is highly capable of executing an effective turnaround for the La Guitarra operation as a base for further growth.

  • Report this Comment On July 06, 2011, at 8:31 AM, XMFSinchiruna wrote:

    As long as we're adding links, Brigus Gold is out with new drill results this morning:

    http://www.snl.com/irweblinkx/file.aspx?IID=4288058&FID=...

    The 147 zone is still open in all directions, and continues to show significant promise at depths beneath those of the initial post-discovery campaign. Latest results include 3.94 g/t over 24.2m, and four drills remain active onsite with a fifth nearby in-filling the Contact Main zone.

  • Report this Comment On July 06, 2011, at 12:33 PM, cizastro wrote:

    Rats...I was hoping to see ALXDF on here :-(

  • Report this Comment On July 06, 2011, at 3:06 PM, silverminer wrote:

    Cizastro,

    Stocks must surpass minimum capitalization and liquidity requirements before they can be covered in published pieces. Otherwise, you can bet the list would have looked quite different. :) ALXDF is my third-largest equity holding.

    http://caps.fool.com/Blogs/compelling-pm-microcaps/569492

    http://caps.fool.com/Blogs/live-chat-with-alexandria/571634

  • Report this Comment On July 06, 2011, at 3:07 PM, silverminer wrote:

    P.S. silverminer = TMFSinchiruna

  • Report this Comment On July 06, 2011, at 4:02 PM, vriguy wrote:

    Thanks for all your great write-ups, including this.

  • Report this Comment On July 07, 2011, at 3:37 PM, tommylad wrote:

    Chris B.

    What are your thoughts on a top 10

    write-up of silver mining companies?

  • Report this Comment On July 07, 2011, at 4:48 PM, silverminer wrote:

    tommylad ... stay tuned. :) Coming in the next couple of weeks.

  • Report this Comment On July 08, 2011, at 9:53 PM, skypilot2005 wrote:

    First I’d like to say I am surprised Brigus is Sinch’s top pick. It was #3 in his Dec. 22, 2010 piece titled “The Top Gold and Silver Stocks for 2011”.

    I continued some ongoing D. D. of my own, tracked the stock daily and purchased a big chunk of shares @ $1.40 on May 17 of this year. I held some shares at that time with a cost of $1.5359 I had purchased on Oct. 28, 2010.

    Including my Oct. shares, I am ONLY up 24.36%, so far. Of course, I am factoring in my meager on-line trading costs. Additionally I calculated in my costs, though tax deductible, of being Sinch’s Official Web Link Assistant.

    I don’t know about you Fools but it’s hard to live on an only 24.36% return in 7 weeks. I have some Major cash out flows. Just ask #4 if you don’t believe me.

    Thanks Sinch for the work you do so well.

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On July 08, 2011, at 10:31 PM, skypilot2005 wrote:

    "On July 07, 2011, at 3:37 PM, tommylad wrote:

    Chris B.

    What are your thoughts on a top 10

    write-up of silver mining companies?

    On July 07, 2011, at 4:48 PM, silverminer wrote:

    tommylad ... stay tuned. :) Coming in the next couple of weeks."

    I have the Links “locked and loaded” when needed. I look forward to your upcoming piece.

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On July 08, 2011, at 10:34 PM, skypilot2005 wrote:

    On July 06, 2011, at 8:21 AM, TMFSinchiruna wrote:

    "I am very bullish on Silvermex, and did increase my holding during the recent weakness. There again, you have a proven senior management team culled from Hecla Mining that is highly capable of executing an effective turnaround for the La Guitarra operation as a base for further growth."

    I am in at .77. I am down slightly from my purchase cost. Less than 5% including trading costs.

    The involvement by the former Helca guys caused me to release “the Trigger”.

    The Rosario/San Marcial mining concession is icing on the cake.

    Your Web Link Assistant,

    Sky Pilot

  • Report this Comment On July 14, 2011, at 3:49 AM, otatais wrote:

    Sinch, what's your opinion on the NXG primero merge?

  • Report this Comment On July 14, 2011, at 12:52 PM, XMFSinchiruna wrote:

    stay tuned ... coming in a couple of hours. :)

  • Report this Comment On July 14, 2011, at 1:30 PM, Jim700 wrote:

    Thank you so much for that wonderful post. I owned 4 of those stocks already, and purchased varying amounts of the ones that I did not.

    I'm not sure that this stock meets the CAPS criteria, but one of my larger gold miner holdings is EXRSF (Pink Sheets) Exco Resources. This is an Australian gold miner, not to be confused with the US Oil drilling company. It is in process of selling off a some Copper holdings for almost 2/3 the market cap of the whole company. It has an impressive list of investors, and is operating a profitable, but small, Gold mine. Perhaps not the upside potential of some of these other selections but the downside is very small.

  • Report this Comment On December 14, 2011, at 5:03 PM, FunToRead wrote:

    when are they going to start making me some money??? Love your work TMF Sinch, especially you and Seth Jayson (on YONG) for putting the hammer down on "Mr. Retracto," your very own online stalker. Made some good money on YONG when his hit article got posted 'elsewhere' a couple of days before options expiration date, and i got the YONG stock, and the put-selling money, then sold for a nice profit when Morgan-Stanley came along.

    Now I'm late to the metals party and waiting for my profits...;)

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