Brigus Gold Digging Its Way Out of the Hole

Investing in a turnaround story is not for the faint of heart!

When it works, the rewards can be sweet -- as with the 76% surge in shares seen by AuRico Gold (NYSE: AUQ  ) within eight months of my selecting the stock as my top pick for 2011. Along the way, AuRico acquired fellow turnaround story Northgate Minerals, yielding a 17% gain for my No. 2 pick last year. Silver Wheaton (NYSE: SLW  ) has turned in a healthy 15-bagger performance since I pegged the stock's multiyear trough back in 2008, and I still think the stock could ultimately gain more than 150% from its present level. Time will tell whether my recent call for a reversal of fortunes at Kinross Gold (NYSE: KGC  ) will bear fruit as well.

Although I've enjoyed some success selecting downtrodden stocks that were primed for a swift reversal of fortune, many of those transformations have proven excruciatingly slow in the making. As a value-oriented investor, I am generally content to wait it out, but that doesn't mean it's easy to do. Brigus Gold (AMEX: BRD  ) in particular has given this Fool some new gray hairs while I awaited long-overdue improvement in its underground mining operations at the Black Fox mine in Ontario. When I visited the Black Fox complex last summer, I witnessed an all-out blitz of underground development activity to yield around a dozen production-ready stopes and bring the historically challenged operation back on its feet. As it turns out, an optimized mine plan now calls for some 30 prepared stopes (see below).

A pair of back-to-back announcements from Brigus this week first rallied the resolve of embattled shareholders, and then served them a hard dose of dollars-and-cents reality. On Tuesday, the company delivered very encouraging news on the operations front, confirming that underground ore grades are back under control after last year's painfully low-grade results. With its gaze still fixed on achieving 25,000 ounces of gold output per quarter upon a foundation of efficient and high-grade underground production, it's looking more and more as though 2012 is the year that Brigus Gold gets its operational house in order.

But on Thursday, Brigus announced a bought-deal financing of $15 million to $17.25 million that will add at least an additional 15.8 million units to a share structure that already has 270.6 million shares outstanding fully diluted. The offering was priced at $0.95 Canadian per share, or nearly a 9% discount to Wednesday's close on the Toronto exchange. Although I admit it's disheartening to see the shares dip back beneath $1 amid this dilutive offering, I nonetheless accept that the company's strategic operating plan to develop some 30 underground mining stopes at Black Fox will require development capital, and frankly nothing is more critical to the long-term interests of shareholders than the successful navigation of a fast-tracked path to steady-state, profitable production at Black Fox.

And as a long-term-focused value investor, particularly now that the company has begun to yield the high-grade underground production that this quality gold deposit is capable of delivering, I can't help focusing on the deep-value proposition here. With a market capitalization of $187 million, the shares hover just $42 million above the net present value of Brigus' oft-forgotten Goldfields development project in Saskatchewan. The still expanding Contact and 147 zones within the Black Fox complex will undoubtedly host a second mining operation, but nowhere are those assets even remotely reflected in the present stock valuation. Though my patience in awaiting the stock's turnaround has certainly worn thin, the recent achievements underground represent a major step forward, and I have every intention of holding my Brigus shares to enjoy the market's eventual celebration of steady-state production at Black Fox.

Looking for more ideas? Download The Motley Fool's special free report "The Tiny Gold Stock Digging Up Massive Profits." Our analysts have uncovered a little-known gold miner that we believe is poised for greatness; find out which company it is and why we strongly believe in its future -- for free!

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, Kinross Gold, 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 has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (25)

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 February 23, 2012, at 5:08 PM, SN3165 wrote:

    Why did it have to be at .95? That part I can't understand.

  • Report this Comment On February 23, 2012, at 5:15 PM, SN3165 wrote:

    It's frustrating to see it this low as I've been averaging down for a while now to the point where it's just about my largest position, at $1.25.

    It looked like we were going to break out or at least climb steadily higher after the higher grades were released, that's what stinks. Well, it's a good thing I am a patient person. But if they suffer another setback I think I might have to re-evaluate this one.

  • Report this Comment On February 23, 2012, at 5:28 PM, XMFSinchiruna wrote:

    SN, Take heart, fellow Fool! I think my cost basis is just under $1.50.

    I share your overall sentiments, and look forward now to a steady trend of increasing underground output at the sorts of grades achieved year-to-date.

  • Report this Comment On February 23, 2012, at 6:25 PM, kurtdabear wrote:

    The additional financing is a real problem for me because management had paid down some debt within the past year. For management now to be adding dilutive equity in a relatively small $ amount is really worrisome. Top that off with the recent mine management changes and the change in stope planning, and it looks like a cover-up for a big-time screw-up. The new stopes will probably be used for high-grading so they can kick the can down the road by getting some acceptable production for a few quarters. It would appear that the coming quarterly report will once again show more losses and deficient cash flow. I'm originally an Apollo holder and was optimistic when the merger with Linear took place and the old Apollo management got the boot, but this is beginning to look like "deja vu all over again."

  • Report this Comment On February 23, 2012, at 6:50 PM, HarryCarysGhost wrote:

    We shall see...

  • Report this Comment On February 23, 2012, at 10:00 PM, charliedawgg wrote:

    Hey Sinch,

    Your winning pick today (PAL) made my day a little brighter as well, but then I scanned their Q4 report that was released a couple of hours ago. I can't decide if I should feel optimistic or just start drinking right now. Any thoughts on how the news might be received by the market tomorrow. I know you don't have one of those elusive crystal balls but I'm always interested in your take on such things. My cost basis for PAL is currently $3.04. You think I should buy champagne for celebration or Canadian Mist and Jagermeister to drown sorrows? Lol. Thanxx once again for your time and input. Cheers, mate.

  • Report this Comment On February 23, 2012, at 10:09 PM, charliedawgg wrote:

    BTW, I already have Jager on hand to help me forget the week with Brigus. Cost basis is $1.23, which doesn't put me in too deep, but it looks like it might be a little while before red goes to green. Godspeed to all my fellow BRDers.

  • Report this Comment On February 23, 2012, at 10:23 PM, XMFSinchiruna wrote:

    Charlie,

    I think you may be referring to my colleague's recent article discussing PAL.

    http://www.fool.com/investing/general/2012/02/13/top-stocks-...

    Sorry, that's one miner I don't regularly follow, so I can not offer commentary there.

  • Report this Comment On February 24, 2012, at 8:05 AM, ravi36 wrote:

    Chris, I have always followed your picks closely. I'm curious to know how many more quarters should shareholders wait patiently for a turnaround with BRD? 3Q of 2012 ??

  • Report this Comment On February 24, 2012, at 8:45 AM, jed71 wrote:

    I know its hard, but think of this price as the opportunity to further average down your cost basis. I think the price here is a gift and agree with Chris' sentiment that the stock is severly undervalued. Don't let the market shake you out - trust your research, and pick up some more on the cheap!

  • Report this Comment On February 24, 2012, at 8:50 AM, mwm102 wrote:

    I bought it looking for a good cheap gold play. That is the problem. You can have good but not cheap or cheap but not good, but not good and cheap. I could see what kind of dead cat bounce it gets today and cash out. But what intrigues me is the Toronto based hedge and mutual fund that owns 10% of the stock. Do they no something we don't?

  • Report this Comment On February 24, 2012, at 10:33 AM, SN3165 wrote:

    Are you referring to Sprott?

  • Report this Comment On February 26, 2012, at 1:51 PM, Ploni wrote:

    I regret that I bought shares of BRD after your earlier report. I dumped the stock for a big loss after their announced dilution. This company and its managers will forever be tainted in my eyes.

    There are so many quality gold and silver miners out there, why invest with one that treats its shareholders like garbage?

  • Report this Comment On February 26, 2012, at 10:26 PM, skypilot2005 wrote:

    http://www.snl.com/Cache/1500039776.PDF?D=&O=PDF&IID...

    Brigus Gold Corporate Presentation 2/24/2012

    Also:

    http://www.snl.com/Cache/1500039590.PDF?D=&O=PDF&IID...

    Sky Pilot

    Official Web Link Assistant to Sinch

    I own BRD

  • Report this Comment On March 12, 2012, at 1:40 PM, charliedawgg wrote:

    Brigus is announcing Q4 earnings etc. on March 29th. Is there ANY reason to be optimistic about the short-term? Has the share dilution already been factored into the current price, or can we look forward to a new low on the 30th? I heard one "ray of sunshine" analyst suggest that we might kiss 75 cents by months end. Opinions anybody?

  • Report this Comment On March 22, 2012, at 12:48 PM, danablanca wrote:

    We're there...welcome to .75 BRD. I own at 1.60. considering whether to double down at this point and reduce my cost basis. the dilution of the stock is surely a concern also...the fact that it would appear they are nowhere near having the necessary infrastructure in place? I mean how long does it take to go from 12 to 30 stopes?

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