Vindication for Gold's Premier Outperformer

Just less than a year ago, I presented a two-part explanation for why I believed Primero Mining (NYSE: PPP  ) was the greatest gold stock in the world. I later selected Primero as my No. 1 stock pick for 2012. When the stock then stumbled to its 52-week low earlier this year, I encouraged readers to remain focused on Primero's golden promise.

Today, I am pleased to report that Primero has indeed proved the greatest gold stock to own through this period. After pausing its intended growth trajectory to properly and conservatively reassess the geological models that guide mine production and resource estimation, Primero has executed beautifully on all fronts to propel the industry's most noteworthy breakout performance for the year.

As the following chart will show, Primero's astonishing 74% surge over the past six months stands in stark contrast to a corresponding 19% drop for the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ  ) that includes Primero plus 82 of its junior gold peers. The gold price, depicted below with the same SPDR Gold Trust (NYSE: GLD  ) bullion proxy that some eye-catching names have been buying lately, was roughly flat over the same period.

PPP Chart

PPP data by YCharts

The long-term promise of Primero Mining
Now that Primero has delivered so convincingly on the company's near-term priorities of tweaking operations under the revised resource model and rebuilding its resource base in the immediate vicinity of current production, my Foolish gaze extends out over the horizon onto Primero's next round of likely achievements.

Primero is currently mulling an expansion of the San Dimas mill to process either 2,500 or 3,000 tons per day, and that decision is expected later this month. On the heels of a substantial midyear resource expansion announced this week -- which carried Primero's total resource (indicated plus inferred) beyond 1.5 million ounces for gold and 108 million ounces of silver -- the foundation for the company's targeted two-year transformation to increase production by 68% to 82% (reaching 200,000 gold-equivalent ounces per year) appears quite strong.

But the true golden promise of Primero Mining is bigger still than the looming potential catalysts of a positive mill-expansion decision and a positive determination by Mexican tax authorities regarding the treatment of silver delivered into Primero's stream deal with Silver Wheaton (NYSE: SLW  ) . Primero's true long-term promise lies in the enormous potential for game-changing resource expansion as exploration efforts shift to the more than 100 known epithermal veins within the San Dimas property that lie beyond the recently enlarged resource base.

That tremendous exploration potential, together with the inevitability of a strategic acquisition or merger over the medium term, underscores the phenomenal long-term value-generating potential that keeps 41% stakeholder Goldcorp (NYSE: GG  ) entrenched in these Primero shares. With the company's enterprise value still 25% beneath the $500 million price tag of Primero's founding transaction, not even this outstanding trailing surge in the shares will prompt me to remove Primero Mining from the set of top picks I've highlighted within my Motley Fool CAPS portfolio. To track all my coverage of this and other top picks among the miners of silver and gold, please bookmark my article list or follow me on Twitter.

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 Goldcorp, Primero Mining, and Silver Wheaton. The Motley Fool owns shares of Primero Mining. We Fools don't 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 (9) | Recommend This Article (24)

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 September 06, 2012, at 7:41 AM, gamblingkev wrote:

    Is it too late to hop on the Primero bandwagon? It looks like gold is ready to really move forward now. By the way what did you think about Aurico's most recent announcements and reductions in their output guidance? Is this (another) temporary setback or are they set to become the new Jaguar Mining?

  • Report this Comment On September 06, 2012, at 11:06 AM, PeterRabit wrote:

    Thanks.

    Long PPP.

    PeterRabit

  • Report this Comment On September 06, 2012, at 2:05 PM, CloudRango wrote:

    Maybe your are just lucky? Look at your 2nd-5th picks, they were all down a lot, especially AUQ.

  • Report this Comment On September 06, 2012, at 4:36 PM, XMFSinchiruna wrote:

    CloudRango,

    Actually, Eldorado is roughly flat YTD, while Brigus and Goldcorp are down roughly 5% (matching the performance of the relevant sector ETF). So it's inaccurate to state they are "all down a lot".

    In any event, I was extremely thorough in laying out the investment rationale for shares of Primero Mining, and the content of my analysis speaks for itself.

  • Report this Comment On September 06, 2012, at 4:46 PM, XMFSinchiruna wrote:

    gamblingkev,

    By my nature, I tend to get very uncomfortable buying into a momentous chart-move like this one, even when I believe as strongly as I do in the company's terrific long-term outlook. If I did not presently hold shares in Primero, I might look to start very small and hope for a pullback. My own buying activity at present is focused on names that have not yet participated in this rally to such a degree.

    I have an article coming out shortly on AuRico. This short answer to your question is that this is neither. It's more than a slight setback, given the impact on 2013 production. But we're a million miles away from comparing this to anything even remotely resembling the Jaguar implosion.

  • Report this Comment On September 06, 2012, at 6:29 PM, carmanbj wrote:

    Sinch, love your articles and great research. I just sold half my position in PPP today. It pained me to do so but I got in at 2.48 and the shares doubled in three months. Love the company and growth potential, but going long with free money from here and might add more if a pullback happens...but doubt it will.

    I'm looking at taking my winnings and rolling it into AUQ since their recent setback. Sinch, do you think the timing is right for AUQ?

  • Report this Comment On September 06, 2012, at 9:10 PM, skypilot2005 wrote:

    My avg. cost on PPP is $3.335 thanks to Sinchi.

    + 51.72%.

    Thanks Sinchi.

    I am going to let it "ride".

    I don't see a reason to sell if, you are a long term investor.

    Sky

  • Report this Comment On September 06, 2012, at 9:25 PM, skypilot2005 wrote:

    On September 06, 2012, at 7:41 AM, gamblingkev wrote:

    "Is it too late to hop on the Primero bandwagon? It looks like gold is ready to really move forward now. By the way what did you think about Aurico's most recent announcements and reductions in their output guidance? Is this (another) temporary setback or are they set to become the new Jaguar Mining?"

    http://www.auricogold.com/

    AuRico Gold Provides Guidance Update and Announces Appointment of Vice President Operations for Mexico

    Toronto: September 5, 2012: AuRico Gold Inc. (TSX:AUQ) (NYSE: AUQ), (“AuRico” or “the Company”) is providing an update on operational guidance.

    Within the release:

    “Financial Foundation

    In addition to future cash flow from operations, AuRico’s financial foundation has recently been bolstered through:

    • completing the divestment of the Stawell and Fosterville mines, on May 4, 2012, for a cash payment of CAD$55 million, CAD$10 million in equity shares of Crocodile Gold, as well as a potential participation in future free cash flows from the mines;

    • completing the sale of the El Cubo mine and the Guadalupe y Calvo exploration project, on July 13, 2012, for a cash payment of USD$100 million, USD$100 million in equity shares of Endeavour Silver, and up to US$50 million in future contingent payments; and,

    • expanding the Company’s revolving credit facility on April 25, 2012, to USD$250 million;

    AuRico has adequate financial resources for the foreseeable future following the recent declaration of commercial production at Young-Davidson, and the anticipated year-over-year increases in its gold production profile. The majority of the capital expenditure commitments associated with construction are now complete and accordingly, Young-Davidson is expected to be a key source of future profitability and operational cash flow generation.”

    Crocodile Gold and Endeavor Silver?

    Hmmm

    Long and Strong AUQ,

    Sky

  • Report this Comment On September 07, 2012, at 5:42 PM, puck42nt wrote:

    PPP has a long way still to go. Valuation is still rock bottom given the cash in hand, track record of the CEO, potential for increase in output and upside in gold prices. My conservative fair value is around $8/share. Its massive undervaluation is one reason shares have been going up in a straight line.

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