A Golden Thoroughbred Named Dolores

Encountering gold and silver within the Sierra Madre mountains of northwestern Mexico is not quite like finding a needle in a haystack. In a region famed for its historic production and thought to contain 40 million ounces of gold today, it's more like finding a horse on a racetrack.

Finding a mine is simply hurdle No. 1, but the aptly named Minefinders (AMEX: MFN  ) located a thoroughbred in Dolores years ago. With an estimated production of 1.7 million ounces of gold and 64 million ounces of silver over the mine's 15-year life, Dolores is shaping up to be a winner for this downtrodden junior miner. Home to Gammon Gold's (NYSE: GRS  ) Ocampo mine and Coeur d'Alene Mines' (NYSE: CDE  ) world class Palmarejo mine -- among others -- the Sierra Madre mountains are like the Churchill Downs of the mining world.

Minefinders announced the first pour of gold at the Dolores mine, officially marking the all-important transition from developing explorer to a gold producer. Since the mine has accumulated 650,000 tons of ore on the leach pad while facilities were commissioned for the now-imminent commercial production, I believe Minefinder's long-awaited transition to production will be swifter than Seabiscuit.

CEO Mark Bailey sees his company emerging as a "leading low-cost, mid-tier gold and silver producer" as the commercial production is achieved during the first quarter of 2009. With a projected cash cost of $297 per ounce of gold, Dolores could place Minefinders in the company of low-cost producers such as larger competitors Yamana Gold (NYSE: AUY  ) and Agnico-Eagle (NYSE: AEM  ) .

This final hurdle could not have been cleared at a better time. With the credit crunch threatening to squeeze developing juniors right out of existence, the resulting likelihood that Minefinders will switch from financing to cash flow to fund its operations during the coming year is a welcome development for Fools looking to avoid more credit-dependent companies.

Today, with shares fetching only $3.60, the company's enterprise value is but a minute fraction -- 9% -- of the present market value of proven and probable gold and silver reserves. Minefinders is not the only apparent bargain in its sector. By a similar measure, much larger companies, including Newmont Mining (NYSE: NEM  ) and Kinross Gold (NYSE: KGC  ) , are also on sale. As Dolores continues to run forward, though, I believe the folly of Minefinders' extreme value discrepancy will ultimately see the light of day.

Further Foolishness:

Just 216 CAPS members have selected five-star pick Minefinders to outperform the S&P 500. For a small-cap gold miner at a time when the entire sector has fallen out of favor with many investors, it appears a few Fools have found something they like in this company. Join our free online community of investors today, and let your voice be heard.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle Mines, Coeur d'Alene Mines, Kinross Gold, Gammon Gold, Minefinders, and Yamana Gold. The Motley Fool has a gilded disclosure policy.


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  • Report this Comment On November 19, 2008, at 11:29 PM, XMFSinchiruna wrote:

    To clarify, the $297 cash cost of production is the estimated cost over the life of the mine, though it's likely to start out in the mid-$400s, perhaps even in the $500s for much or all of 2009, before achieving sub-$300 costs once a planned mill facility is added by about 2010.

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