A New Year for Brigus Gold

Because the stock landed at No. 3 among my "Top 10 Gold Stocks for 2012," naturally the sudden departure of Brigus Gold's (AMEX: BRD  ) experienced chief operating officer -- announced this week -- captured my Foolish attention.

Richard Allan has a long and distinguished career under his belt, including a stint as senior director of mining for the world's largest gold producer: Barrick Gold. He made a strongly positive impression upon me during my visit of Brigus' Black Fox mine complex in Ontario last June, and I have repeatedly referenced his involvement with Black Fox as a cause for resilient investor confidence in the mine's much-delayed operational turnaround.

Straight to the source
Although I was, admittedly, a touch unnerved initially by the development, I find my confidence restored following my telephone conversation Tuesday morning with Brigus Gold CEO Wade Dawe. As he correctly points out, the market's deep and sustained punishment of Brigus shares following a spate of operational disappointments during 2011 conveys a certain readiness among investors for some structural change. Accordingly, Brigus stressed in its fourth-quarter update that the company "continues to make changes to improve weak performance of the underground mine." Other recent changes have included the addition of a new mine general manager, four mine geologists, and a production coordinator.

As a result of these changes, the high expectations of Brigus investors now fall on the lap of newly installed Black Fox mine manager Marc Bilodeau, whose 30-plus years of experience in the industry includes management of multiple mines including several in the relevant area near Timmins, Ontario. He served most recently as manager of mining for First Nickel's resurgent Lockerby mine in Sudbury, Ontario. Previously, he served as area manager for global mine development contractor Redpath Mining.

What to look for in 2012
Dawe is committed to delivering steady-state production of 25,000 ounces per quarter from the Black Fox mine, and I believe he has all the necessary ingredients in place. Investors can anticipate some operational updates to gauge month-over-month progress in the early going, with the initial focus being a steady improvement in ore grade moving closer to historical grades in the neighborhood of 6 grams of gold per ton. Priority one will be to get those grades under control, followed by a focus on ramping-up production volume while sustaining those higher grades. The mill continues to operate well, such that high-grade underground output volume remains the sole significant bottleneck at the operation.

A range of additional changes are afoot to facilitate the rapid turnaround. The Black Fox underground deposit contains veins of variable thickness, and Dawe intends to focus new hires for underground miners among those with specific experience navigating the peculiar challenges of those thinner vein segments. Additionally, some of the equipment on site may be oversized for the operation, and a few strategic tweaks there could further enhance efficiency.

I have been waiting for a turnaround at Brigus Gold for some time, and I know I'm not the only investor who anticipated a less grueling ramp-up for underground production at Black Fox. But I continue to believe that the greatest turnaround stories are worth waiting for, and that the market's persistent battering of the shares has indeed opened up an uncanny value opportunity. I take this opportunity to recognize the important achievements at Black Fox that were made under Allan's watch, including the establishment of a dozen ready production stopes underground that I believe will facilitate prompt improvements.

Patience is a virtue
As I continue to develop my own understanding of the daunting challenges that accompany underground mine development and production, I find myself increasingly forgiving of hiccups and delays of reasonable duration. Agnico-Eagle Mines (NYSE: AEM  ) offers a rather extreme example, where I have tracked a string of unfortunate setbacks that has befallen what I still consider a rock-solid management team. And even as the market's patience with Brigus Gold has grown particularly thin, I remain confident in the deep value represented by the shares at this juncture. Not only do I see a more successful path forward for underground operations at Black Fox, but my long-term gaze has already fallen upon the highly attractive and rapidly expanding resources of the nearby Contact and 147 zones.

It's a new year for Brigus Gold, and a welcome new year for the gold miners at large. 2012 has already breathed a touch of fresh life into the downtrodden sector with some exciting gains here in the first week. My top pick for 2012 -- Primero Mining (NYSE: PPP  ) -- has already delivered a 9% surge from its 2011 close to kick off the year in style. Paramount Gold & Silver (AMEX: PZG  ) , the deeply undervalued explorer that's one of the few nonproducers to have made my list, likewise stands 9% above its Dec. 30 close. Battered major producer Kinross Gold (NYSE: KGC  ) , which earned my No. 10 pick, has added a swift 7%. I have issued bullish CAPScalls in my Motley Fool CAPS portfolio for each of these stocks (as well as Brigus Gold), and I invite my fellow Fools to follow suit.

Because Brigus has remained one of the gold market's favorite punching bags throughout the noteworthy sell-off in precious-metal equities during the latter half of 2011, I believe that the stock could offer one of the more pronounced returns to upward momentum in 2012 as a reinvigorated gold sector combines with a long-awaited return to reliably positive news flow from one of the more compelling turnaround stories taking shape in the industry today.

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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 Agnico-Eagle Mines, Brigus Gold, Paramount Gold & Silver, and Primero Mining. 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 (7) | Recommend This Article (26)

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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 January 04, 2012, at 5:07 PM, wwmeinc wrote:

    I am curious,was it not Redpath Mining as a contractor to the old Apollo Gold outfit that performed all the work to get the BlackFox Mine operational???

    Suppliers Roundup (March 15, 2004) - New Technology Magazine

    www.newtechmagazine.com/issues/

    15 Mar 2004 – Mining contractor J.S. Redpath has been commissioned to build Apollo Gold's exploration drift at the Black Fox project, near Timmins, Ont. ...

    JS Redpath to cut a drift

    Mining contractor J.S. Redpath has been commissioned to build Apollo Gold's exploration drift at the Black Fox project, near Timmins, Ont.

    The exploration drift will be developed from the existing underground workings at Black Fox, formerly known as the Glimmer mine.

    The 1,250-metre drift will be 235 metres below surface in the hangingwall along the strike of the ore zone. It will be used as a platform for drilling 80,000 metres over the next 18 months. An underground drilling contract will be tendered and awarded over the next few months.

    The exploration drift will also be used to develop test stopes for further underground mining and obtain a bulk sample for metallurgical studies. Apollo Gold also wants to use the drift to study ways to delineate the next portion of underground mineralization.

    "The exploration drift is an important step in developing additional mineralization zones for the underground phase of the Black Fox project," says Richard Nanna, vice-president of exploration for Apollo Gold. "To date, more than 80,000 metres of core drilling from 296 holes have been completed from the surface to identify gold-bearing structures."

    An additional 40,000 metres of core drilling from the surface are planned for later this year.

    Apollo Gold is based in Denver, Colo., and has operations in Nevada and Montana.

    J.S. Redpath is based in North Bay, Ont., and has sunk shafts and built mining projects throughout the world.

    ===============

    Maybe my memory is wrong.......might be something you would be able to ask the CEO.

    It never hurts to remind your viewers of the ROE mgmt has returned to their shareholders,or lack thereof.

    Thanks.

  • Report this Comment On January 04, 2012, at 9:23 PM, mhonarvar wrote:

    Sandstorm has an agreement to purchase 12% of the life of mine gold produced from Black Fox and 10% of the life of mine gold produced from the Black Fox extension (which includes a portion of the Pike River concessions) for an upfront payment of $56.3 million and ongoing per ounce payments equal to the lesser of US$500 and the prevailing market price per ounce of gold. Brigus will have the option, for a period of 24 months, to repurchase 50% of the gold purchase agreement by making a US$36.6 million payment to Sandstorm, upon receipt of which, the percentage of gold Sandstorm is entitled to purchase shall be decreased to 6% for the Black Fox mine and 4.5% for the Black Fox extension.

    http://www.sandstormgold.com/s/BlackFoxMine.asp

  • Report this Comment On January 04, 2012, at 10:39 PM, SN3165 wrote:

    I don't think they'll be making the $36 mill. payment

  • Report this Comment On January 05, 2012, at 12:25 AM, XMFSinchiruna wrote:

    wwmeinc,

    As a former Apollo shareholder, I am well aware of the historical context at Black Fox. But I draw a distinction between that period and the one under post-merger management.

    It's my understanding that multiple contractors have been active at Black Fox over the years. I fail to see the point of your line of inquiry with respect to Redback.

  • Report this Comment On January 05, 2012, at 11:18 AM, wwmeinc wrote:

    TMFSinchiruna,

    I am glad you are a "former" Apollo Gold shareholder.....as Redpath was one of the main contractors at Black Fox, their early work is/was important for this mine going forward and now that an insider from Redpath will now be running "the show" at the Black Fox Mine site I am sure the problems that seem to be plaguing this project get ironed out....as this is all the NR's keep repeating over and over again.....problems here and problems there....maybe this will be the yr. Apollo/Brigus finally rewards its shareholders who have stayed after seeing their investment cut by their 4 : 1 reverse split.......from the yrs I have followed this stock the only people who have been rewarded here were mgmt....past and present.

    Good luck if you are now a shareholder in Brigus as I will just follow the stock on my watchlist......I have decided to move my capital into uranium and oil sands with a sprinkle of coal stocks. No gold just SLW.

  • Report this Comment On January 05, 2012, at 3:09 PM, daveinwy wrote:

    The bulk of my small portfolio is with Brigus Gold and samson Oil and gas. I'm with them for the long haul.

  • Report this Comment On February 08, 2012, at 2:05 PM, Retirefunds wrote:

    I agree with your assessment that Brigus, at this low evaluation, is poised for a solid breakout. I have been acquiring more of BRD during this pullback.

    I believe, as the entire sector gains traction this year, Brigus will be a leader in total gains for shareholders.

    Only time, and good management, will tell.

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