When markets go haywire and toss fundamental valuations out the window -- a condition that is currently assailing the miners of gold and silver -- I focus my Foolish shopping list on those stocks that are busy generating shareholder value that is bound to get priced in once rationality returns.
I have waited with baited breath for Brigus Gold's (AMEX: BRD) initial resource estimate on the exciting Contact and 147 zones within its Black Fox mining complex in Ontario. The result is no disappointment, as Brigus' total resource at the Black Fox just expanded by more than 50% to reach 1.69 million ounces (including inferred resources). This is a robust initial estimate, particularly considering that discovery of the 147 zone -- which accounts for more than two-thirds of these new resource ounces -- was only just confirmed in April of this year! Notwithstanding the market's imperceptible response, Brigus is to be congratulated for an extremely successful exploration campaign during 2011.
It is worth noting, also, that assays from a further 95 drill holes conducted on the properties are still pending, including some deeper exploration that has already extended the known depth of mineralization at the 147 zone from 350 meters to 435 meters. As Brigus' vice president for exploration, Howard Bird, points out, those pending assays "will increase our resource area drill hole data by 37%." He added: "We expect the results from these holes will expand the resource and convert Inferred ounces to Indicated ounces in 2012." Importantly, this emerging gold resource is located close to Brigus' existing mining infrastructure at the flagship Black Fox Mine, and access into underground resources of the Contact zone is facilitated by an existing portal and ramp system left over from the historical Gibson Mine. In conjunction with this development, Brigus is considering another expansion of its milling facility to a respectable 3,000 tons per day.
In good company
Of course, Brigus is not alone in delivering news of significant value-generating developments that have failed to result in the sort of upside catalyst that investors might reasonably expect. Endeavour Silver (NYSE: EXK) this week revealed the results of its own very successful exploration campaign at Guanajuato, confirming very high grade silver and gold mineralization within targeted structures that captured my interest during my tour of the mine in October. As Endeavour's vice president for exploration, Barry Devlin, explains, these new discoveries lead Endeavour to expect "a substantial increase in reserves and resources at Guanajuato at year-end. This should allow management to undertake the next phase of mine expansion in 2012 from 1000 tonnes per day (tpd) up to 1600 tpd at Guanajuato." A major keystone of Endeavour's meaningful production growth capacity has just fallen into place. But in place of a rational bump, the stock has drifted lower this week with the rest of the precious metals complex.
In an even more egregious example, metallurgical-coal-focused Cardero Resource (AMEX: CDY) released a preliminary economic assessment this week that values its 75% share of the Carbon Creek deposit in British Columbia's coveted Peace River Coal Field at a whopping $752 million. But instead of launching the stock's swift climb out of its deeply undervalued doldrums, the market placed coal in Cardero's stocking as an indiscriminate exodus from commodity stocks dragged the shares lower still. I initiated my bullish CAPScall on this stock at more than twice its current share price. But I know value generation when I see it, no matter how the market forces me to wait before that value is realized in the share price.
Although poignant examples of underappreciated achievements have seemed to multiply in recent weeks, my analysis of resource-related equities routinely uncovers standout bargains that are rendered clearer still when positive developments go under-rewarded. Back in October, I offered "5 Clever Ways to Get Some Gold for Free," and each of those picks related to recent or looming developments that I believe the market has clearly failed to rationally reflect. Paramount Gold & Silver (AMEX: PZG) has delivered a mother lode of value creation during 2011, and yet the stock approaches the year end with a 42% decline during an up year for gold! Given how far the counterintuitive slide has extended, I recently reclassified my corresponding CAPScall as a "top pick" within my CAPS portfolio.
Although my top stock pick for 2011 has managed to outperform both the S&P 500 (INDEX: ^GSPC) and the sector-benchmark Market Vectors Gold Miners ETF (NYSE: GDX) thus far, AuRico Gold (NYSE: AUQ) (formerly Gammon Gold) has now dipped into negative territory for the year! When I pause to consider the noteworthy pair of hugely transformative and significantly accretive acquisitions completed during 2011, I find myself at a rare loss for words to characterize the nature of this equity market's departure from rationality. Needless to say, if the stock was a bargain in December 2010 -- which of course I maintain it was -- it's a far greater bargain today with meaningfully expanded production volume and new world-class gold mine set to commence production early in 2012. Whether positive corporate developments go under-rewarded for a week, or a year, the result is often the same: an underappreciated stock that masks a compelling valuation disconnect. And that, fellow Fools, is my favorite place to invest.
Screaming into the wind
Releasing news into a torrential marketplace can be a bit like screaming into the wind, and it can be frustrating for investors to watch long-awaited catalysts fall upon deaf ears and fail to move a stock as anticipated. But patient Fools know that the nature of the value generated is far more important to a stock's long-term performance than the immediacy of the market's recognition of same. In fact, as an investor I welcome the market's frequent failures to respond rationally to significant value-generating developments.
- Add Brigus Gold to My Watchlist
- Add Cardero Resource to My Watchlist
- Add Paramount Gold & Silver to My Watchlist
- Add Endeavour Silver to My Watchlist
- Add AuRico Gold to My Watchlist
