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A Golden Opportunity for Brigus Gold

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Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. Getting in before Wall Street discovers them -- or rediscovers them -- means you can stake a claim before they start taking off. 

Here we check out companies with minimal analyst coverage at best, but which still generate high marks from investors for your next home run investment.

It's not so much that a company encounters adversity -- they all will -- but rather how they deal with it that determines its mettle. Junior gold miner Brigus Gold (UNKNOWN: BRD.DL  ) certainly has faced down a string of production delays at its Black Fox mine and internal problems that put on hold what had appeared to be a sharp growth trajectory. But now it's engineered a turnaround from those miscues and misfires with a new team, and a focus on a right-sized operation, so that the miner looks ready to roll again. With just one Wall Street analyst covering the miner who believes that it will outperform the broad market indexes, it's likely Brigus won't stay hidden for long.

Hiding in plain sight
Earlier this month it reported hitting fourth-quarter production targets of 22,672 gold ounces finishing the year with 77,374 ounces for the year, just making it over the threshold for the guidance it had set at the start of 2012 of between 77,000 and 85,000 gold ounces. The weak start ended up as a strong finish, which bodes well for the future. Notably it anticipates funding Black Fox with internally generated cash flows.

Its decision to buyback 4% of the gold stream it had sold to Sandstorm Gold (NYSEMKT: SAND  ) in 2010 indicates the miner is feeling confident about what's to come. The original agreement with Sandstorm gave the streamer the right to 12% of Black Fox production, for which it paid $500 an ounce. Brigus exercised its repurchase rights under that agreement -- which it had to do by the end of the year -- and paid Sandstorm over $24 million to repurchase a portion of the stream. Sandstorm still has rights to 8% of the output, but Brigus ought to see the repurchased portion contribute to earnings beginning this quarter.

Since it did enter into debt financing to pay for the stream, and those payments begin in June, the fact that Brigus says it's able to fund itself with self-generated cash flows speaks highly of how it views what's to come from Black Fox. Brigus had the right to purchase an additional 2% of the stream and apparently chose not to, which seems in line with the new conservative nature of management not to overextend itself. With cash costs at around $700 an ounce and gold currently trading at $1,680 an ounce, Brigus ought to do well.

The high cost of living
Higher costs have weighed on gold miners of all sizes who've enjoyed high prices to justify their production plans. But as the metal backed away from its highs, the company has been left with higher expenses that sapped performance and caused its shares to fall. Goldcorp and Kinross Gold ended 2012 down double-digit percentages while Barrick Gold lost a quarter of its value.

For its part Brigus showed more resilience, losing just 3% of its value last year; though, it still remains 26% below its annual highs.

Federal policies are playing havoc with the price of gold, which has retreated sharply from its highs, and while my own portfolio does include some of the smaller players in the field like Primero Mining and Paramount Gold & Silver -- not to mention SPDR Gold Shares -- it's easy to tell I'm still bullish on the yellow metal.

Crazy like a fox
One area I would like to see Brigus do better is to raise those production levels so that they come in toward the high side of its estimates. While I don't want them low-balling the numbers, it would give investors a little more confidence if they weren't always squeaking over the finish line. But with the Grey Fox project the next avenue to be developed, and considering the high-grade intercepts it just reported, this might not be such a concern anymore.

At just five times earnings estimates, Brigus trades at a significant discount to fellow junior miners like Primero, Tanzanian Royalty Exploration, and Timmons Gold, and while their situations aren't all analogous, I like the prospects for Brigus returning to its former growth trajectory particularly at these levels.

Swing for the fences
Goldcorp is one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production of one of the most sought-after metals in the world continues to make it an attractive choice for long-term investors. Click here for our detailed report to discover more about this mining specialist.


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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 16, 2013, at 3:13 AM, buffettville wrote:

    You don't mention the fact that they raised capital at a very low shareprice to buy back the Sandstorm gold stream, an action that was not very friendly to small shareholders, since it caused dilution

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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Related Tickers

12/31/1969 7:00 PM
BRD.DL $0.00 Down +0.00 +0.00%
Brigus Gold Corp. CAPS Rating: ****
SAND $3.57 Down -0.36 -9.16%