Because the stock landed at No. 3 among my "Top 10 Gold Stocks for 2012," naturally the sudden departure of Brigus Gold's (AMEX: BRD) experienced chief operating officer -- announced this week -- captured my Foolish attention.
Richard Allan has a long and distinguished career under his belt, including a stint as senior director of mining for the world's largest gold producer: Barrick Gold. He made a strongly positive impression upon me during my visit of Brigus' Black Fox mine complex in Ontario last June, and I have repeatedly referenced his involvement with Black Fox as a cause for resilient investor confidence in the mine's much-delayed operational turnaround.
Straight to the source
Although I was, admittedly, a touch unnerved initially by the development, I find my confidence restored following my telephone conversation Tuesday morning with Brigus Gold CEO Wade Dawe. As he correctly points out, the market's deep and sustained punishment of Brigus shares following a spate of operational disappointments during 2011 conveys a certain readiness among investors for some structural change. Accordingly, Brigus stressed in its fourth-quarter update that the company "continues to make changes to improve weak performance of the underground mine." Other recent changes have included the addition of a new mine general manager, four mine geologists, and a production coordinator.
As a result of these changes, the high expectations of Brigus investors now fall on the lap of newly installed Black Fox mine manager Marc Bilodeau, whose 30-plus years of experience in the industry includes management of multiple mines including several in the relevant area near Timmins, Ontario. He served most recently as manager of mining for First Nickel's resurgent Lockerby mine in Sudbury, Ontario. Previously, he served as area manager for global mine development contractor Redpath Mining.
What to look for in 2012
Dawe is committed to delivering steady-state production of 25,000 ounces per quarter from the Black Fox mine, and I believe he has all the necessary ingredients in place. Investors can anticipate some operational updates to gauge month-over-month progress in the early going, with the initial focus being a steady improvement in ore grade moving closer to historical grades in the neighborhood of 6 grams of gold per ton. Priority one will be to get those grades under control, followed by a focus on ramping-up production volume while sustaining those higher grades. The mill continues to operate well, such that high-grade underground output volume remains the sole significant bottleneck at the operation.
A range of additional changes are afoot to facilitate the rapid turnaround. The Black Fox underground deposit contains veins of variable thickness, and Dawe intends to focus new hires for underground miners among those with specific experience navigating the peculiar challenges of those thinner vein segments. Additionally, some of the equipment on site may be oversized for the operation, and a few strategic tweaks there could further enhance efficiency.
I have been waiting for a turnaround at Brigus Gold for some time, and I know I'm not the only investor who anticipated a less grueling ramp-up for underground production at Black Fox. But I continue to believe that the greatest turnaround stories are worth waiting for, and that the market's persistent battering of the shares has indeed opened up an uncanny value opportunity. I take this opportunity to recognize the important achievements at Black Fox that were made under Allan's watch, including the establishment of a dozen ready production stopes underground that I believe will facilitate prompt improvements.
Patience is a virtue
As I continue to develop my own understanding of the daunting challenges that accompany underground mine development and production, I find myself increasingly forgiving of hiccups and delays of reasonable duration. Agnico-Eagle Mines (NYSE: AEM) offers a rather extreme example, where I have tracked a string of unfortunate setbacks that has befallen what I still consider a rock-solid management team. And even as the market's patience with Brigus Gold has grown particularly thin, I remain confident in the deep value represented by the shares at this juncture. Not only do I see a more successful path forward for underground operations at Black Fox, but my long-term gaze has already fallen upon the highly attractive and rapidly expanding resources of the nearby Contact and 147 zones.
It's a new year for Brigus Gold, and a welcome new year for the gold miners at large. 2012 has already breathed a touch of fresh life into the downtrodden sector with some exciting gains here in the first week. My top pick for 2012 -- Primero Mining (NYSE: PPP) -- has already delivered a 9% surge from its 2011 close to kick off the year in style. Paramount Gold & Silver (AMEX: PZG), the deeply undervalued explorer that's one of the few nonproducers to have made my list, likewise stands 9% above its Dec. 30 close. Battered major producer Kinross Gold (NYSE: KGC), which earned my No. 10 pick, has added a swift 7%. I have issued bullish CAPScalls in my Motley Fool CAPS portfolio for each of these stocks (as well as Brigus Gold), and I invite my fellow Fools to follow suit.
Because Brigus has remained one of the gold market's favorite punching bags throughout the noteworthy sell-off in precious-metal equities during the latter half of 2011, I believe that the stock could offer one of the more pronounced returns to upward momentum in 2012 as a reinvigorated gold sector combines with a long-awaited return to reliably positive news flow from one of the more compelling turnaround stories taking shape in the industry today.
- Add Brigus Gold to My Watchlist.
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