Here's Why I Bought This Junior Gold Miner
Mar 21st 2012 11:02AM
Updated Mar 22nd 2012 11:02AM
To say that I'm enamored with the gold sector of late might be a gross understatement. A mixture of near-record gold prices and increasing mining efficiency has created an almost perfect storm of value among gold producers.
The pickings in the sector are vast, so choosing which company I was potentially going to invest in next was difficult to say the least.
Barrick Gold (NYS: ABX) has been catching my attention as the second-largest gold producer in the world, and with its dividend tied to the yellow metal, it allows shareholders to essentially play along without having to own physical gold.
Gold Fields (NYS: GFI) is also looking particularly cheap at just seven times forward earnings. The reason I was considering purchasing this company was its additional deposits of copper, a metal that will continue to benefit from growth in the BRIC countries. But then I realized I already have this wonderful stock named Thompson Creek Metals (NYS: TC) that is a core holding in my portfolio that's sitting on 2.1 billion pounds of copper and 6 million ounces of gold at its Mt. Milligan property.
So what stock did I finally decide on? Get ready for this...
Claude Resources (ASE: CGR) .
Yes... puny old Claude Resources, which currently has only one gold-producing mine, the Seabee mine. But don't let Claude's size fool you -- there's more to this junior miner than meets the eye, as Foolish precious metals junkie Christopher Barker has touched on before.
Within the past week Claude Resources increased its inferred mineral reserve estimates by a whopping 236%. You heard me correctly: a 236% increase that implies 873,400 ounces of gold over its year-end 2010 figures based on drilling estimates.
The biggest boost to Claude's inferred estimates came from the Santoy Gap, which is projected to yield 495,000 ounces of gold at an almost identical grade (6.6 grams/tonne) to that of the current Seabee mine. Santoy 8 also provided a nice boost with inferred resources more than doubling to 149,000 ounces from 66,200 ounces.
Stay with me now, because here comes the fun part. Adding together the proven and probable reserves of Seabee and Santoy 8 at 355,600 ounces, the measured and indicated reserves of 70,700 ounces, and the recently boosted inferred reserves of 873,400 yields about 1.3 million ounces of gold. That's about $2.16 billion worth of gold at today's prices currently sitting in the ground.
The kicker is that Claude Resources isn't valued anywhere near this $2 billion mark. In fact, it's not even valued at the $200 million mark. With an enterprise value of $166.4 million, Claude is just barely trading above its book value despite being profitable and forecasting a 13% rise in gold output over 2011. It's as if investors are completely ignoring the long-term prospects of its Seabee operations and focusing on the lowered production forecast for 2012.
As for me, I'm certainly not. I see an unbelievable value in Claude Resources and I may just add even more to my recently initiated position when the Fool's disclosure policy allows me to. What I do plan to do now is to make a CAPScall of outperform on Claude Resources.
Give it to me straight, fellow Fools -- am I a genius or a certified wacko? Tell me in the comments section below and consider joining me in making a call on Claude Resources on CAPS.
I've made my choice in Claude Resources, but our highly trained team of Fools sees another small gold stock that could add riches to your portfolio. See what company is making their eyes glitter for free!
At the time this article was published Fool contributor Sean Williams owns shares of Claude Resources and Thompson Creek Metals, but has no material interest in any other companies mentioned in this article. He loves digging up a good value in the mining sector. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. 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 that's more valuable than all of the precious metals.
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