Going Back Underground at Brigus Gold

With my pick and ax in hand, I am digging through the rubble of a demolished precious-metal equity patch in search of the deepest value for investors.

A tough trailing year for one junior gold miner has forced investors to dig a little deeper for the resolve to await a long-anticipated turnaround, but Brigus Gold (AMEX: BRD  ) is now showing meaningful signs of operational improvement that I expect will ultimately reward intrepid shareholders for their patience. For a timely first-hand look at these revamped operations, I'm heading back to Timmins, Ontario, shortly for a second visit to Brigus' Black Fox mine complex.

Obviously, I wish I could have foreseen the number of challenges Brigus would face in executing its plan for the underground portion of the mine back when I first visited the operation one year ago. Underground development was chugging right along, and an expanding mill was already realizing excellent gold recovery in advance of ramped-up production from the high-grade underground deposit. Now one year, one senior management shake-up, and one substantially revamped mine plan later, a long continuum of disappointment from the Black Fox mine complex stretching back to the mine's previous owner finally looks primed for reversal.

I am eager to see the revised mining methods in action, and to speak with mine manager Marc Bilodeau and his team about the rapid improvements achieved thus far. Because dilution of high-grade ore stood at the heart of Brigus' underground shortfall, Brigus' improvement can be measured in grams per ton (gpt). From an average underground grade beneath three gpt during the fourth quarter of 2011, Brigus promptly doubled that figure to achieve about six gpt during the first quarter (albeit at modest volume). With the mining process now under control with respect to dilution of grade, the final segment of the turnaround rests with the ramping-up of production volume from an increased number of production "stopes" (individual excavation faces). As Black Fox approaches steady-state production of roughly 100,000 ounces per year, holders of Brigus' shares as well as those of 12% gold-stream royalty holder Sandstorm Gold are bound to realize gilded gains.

While some portion of the trailing weakness in the shares of Brigus Gold was undoubtedly warranted under the circumstances, a number of Brigus' meaningful accomplishments that fell upon the market's deaf ears due to the Black Fox woes have considerably enhanced shareholder value. When I visited the Black Fox complex last year, the high-grade gold deposits known as the 147 and Contact Zones were only just beginning to reveal their hidden treasure. By December of 2011, however, an initial resource estimate for these deposits had already identified 1.69 million ounces of gold to increase the company's total resource by 50%! Epitomized by a recent gold intercept of 26.83 gpt over 15.5 meters in the Contact Zone, Brigus' phenomenal exploration results continue to expand the scale and significance of these major strategic assets. Furthermore, given Brigus' market capitalization of just over $200 million, the market has clearly refused to ascribe any value whatsoever for the company's Goldfields project in Saskatchewan. According to the pre-feasibility study completed last October, the Goldfields project alone commands a base-case net present value of $144 million.

Because I prefer to strike when golden achievements fall on deaf ears, I have added to my own stake in Brigus Gold throughout the trailing malaise. I have remained steadfast in my expectation of a resounding turnaround for the gold mining equities at large. I've resolved to traverse the silk road with Eldorado Gold (NYSE: EGO  ) , to grow old with IAMGOLD (NYSE: IAG  ) , and to stick like glue to Silver Wheaton (NYSE: SLW  ) . Likewise, I perceive powerful upside potential from shares of Brigus Gold, and I look forward to reporting my findings after visiting the Black Fox mine for a second time. Please bookmark my article list or follow me on Twitter to stay tuned for my upcoming piece on Brigus Gold, and please feel free to submit any questions you would like me to ask of Brigus management by using the comments section below.

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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 Brigus Gold, Eldorado Gold, IAMGOLD, 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 (6) | Recommend This Article (12)

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 13, 2012, at 3:19 PM, daveinwy wrote:

    Christopher,

    I too, have been adding to my Brigus holdings. I have a modest amount(less than 300 shares). I await your report!!

  • Report this Comment On June 13, 2012, at 5:12 PM, ESP09 wrote:

    Chris,

    I just started following this company a couple months ago and appreciate your in depth reports on its activities, which I can compare with my own research. While 2011 looked like a disastrous year -- with lower production, higher costs, and lower grades than 2010 -- they seem to have righted the ship in all three areas during the first quarter of this year.

    I am excited about the findings in the 147 and contact zones, but I do notice that about 80% of the resources found there are in the dubious (to me) "inferred" resources category. As I am relatively new to the gold mining game, I do not know how reliable this category of resources tends to be. In your experience with mining companies, what tends to be the eventual realized rate of these inferred resources? Do you believe that they will soon be able to confirm that these resources actually exist and can be mined? I would think that the reason the market hasn't accounted for the exposure to these zones is because most of the resources are still inferred, and that if the company can confirm more of those resources the stock is prime for a nice bounce. What do you think?

    And finally, the Goldfields property looks to be great asset for this company, but the company has definitely placed it on the back burner for the time being. Might you be able to ask them about when they plan to focus some attention on that mine during your visit? This property clearly has been minimally valued into the stock price... so any news about plans to produce in that area is certain to boost the stock.

    Thanks for the help man, and please keep up your reports and analysis.

  • Report this Comment On June 13, 2012, at 6:08 PM, XMFSinchiruna wrote:

    ESP09,

    Because the Contact and 147 Zones remain fresh young discoveries that have yet to stop growing in scope and quality, and further resource expansion is a certainty given subsequent exploration success, the wise Fool will take the those inferred ounces into their proper account.

    When conducting comparative valuation work on resource portfolios, I will apply a rigid formula to allocate diminishing value among the 3 resource category groupings (Proven & Probable, Measured & Indicated (taking care to see whether or not reserves are included within or recorded apart from M&I Resources), and Inferred. I like to remain conservative in my valuation work, so indeed I would assign a low multiple to inferred resources in such a context.

    When examining the fundamental outlook of a miner, however, I will use a more nuanced approach that considers each respective category of resource within the context of the outlook for conversion to categories reflecting greater geological and economic certainty. At 147 and Contact, I would rate the outlook for positive resource conversion quite high as this exploration campaign and related assessment of project feasibility mature.

    In other words, 147 and Contact remain open books, and I consider it important to read them that way.

    With respect to Goldfields, it is on the back burner presently as all hands are on deck for Black Fox. I would expect, and I think the company has stated, that next movement on Goldfields will come sometime after Brigus achieves steady-state at Black Fox. Even then of course 147 and Contact will remain far greater development priorities comparatively.

  • Report this Comment On June 13, 2012, at 6:10 PM, XMFSinchiruna wrote:

    daveinwy,

    Thanks for reading! Here again is that article list that links to all my recent articles.

    http://www.fool.com/author/1632/index.aspx

  • Report this Comment On June 15, 2012, at 5:26 PM, Dkjaa wrote:

    Thanks for letting us know about your visit to Black Fox. I own a rel. large position (in excess of 100,000 shares) and have been adding over the past six months. While we are still in a wait and see mode w.r.t to 100,000 ounces per year, I would be interested in understanding what type of mine life we would be looking at if the drill results continue to come in at such excellent levels (seem to be around 3-6 gpt). I know we have already increased the resource by 500,000 ounces, but I wonder if we will be looking at a total resource in excess of 2 million ounces before all is said and done...which would give us a mine life of 20 years....which on its own would make this a very valuable acquisition for someone.

  • Report this Comment On January 09, 2013, at 4:21 PM, 41847 wrote:

    I could use a little help here. Could you provide or point me to a source for definitions of proven and probable, measured and indicated, and inferred? Also, what is the definition of reserves? Your article refers to another visit to Black Fox. Has that occurred or is that still in the future? Thanks for your help.

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