Latest Frontier “Pioneer Pick” from Casey’s Big Gold

Jeff Clark's latest mid-tier producer recommendation

By Travis Johnson, Stock Gumshoe, April 8, 2014

Yep, another gold stock. The gold fear is leaving the markets at least a little bit now that the price has flattened out a bit in the $1,200-1,400 range over the last several months, and I expect it won’t be too long before the teaser stock mania picks up again for the miners.

Today we’ve got one from Big Gold, which is the “lower risk” mining stock letter from Jeff Clark at Casey Research, usually looking for larger companies that are actually producing gold and silver. The little spiel they’ve been sharing about the idea was intriguing enough that a passel o’ readers wrote in asking for the answer.

And your friendly neighborhood Gumshoe does aim to please. So let’s get an answer for you.

What do the Casey folks tell us about this one? Here’s the intro:

“My colleague Louis James and I had both been watching this budding producer for several years. We had even drafted a write-up to recommend it to subscribers, but in the end passed due to our concerns about the higher political risk in the play.

“However, the company stayed on our watch list, and over the next couple of years we observed how management continued to successfully navigate several mining jurisdictions others viewed as too troublesome to bother with. It became increasingly clear this team was extremely skilled at working in ‘frontier’ territories….

“It’s a team of geologists, engineers, and financial executives who have been together for 25 years, and who did amazing things with their last junior company before it was taken over by a major producer for a whopping $3.5 billion.”

So to at least some degree this is a “people” bet, which is a common approach in the natural resources business — no surprise that these guys and most other mining stock analysts and newsletters talk a lot about experienced management teams and successful past projects when they pitch a stock: Mining is, even more than most industries, full of big talkers who never get anything done… even if you do manage to avoid the actual scam artists. So finding management teams that are accomplished and trustworthy is, unfortunately, a big part of the work.

The hints about this management team’s past are that they built a successful company under tough conditions in Pinochet’s Chile in the 1980s, and that they built two mines in Russia starting in the early 1990s, including one in Chukotka that was later bought out for $3.5 billion.

And they’re looking to do it again, turning a third junior into a big player. If it’s in this newsletter it’s probably already a fairly large stock, so this won’t be a microcap blowout idea unless I miss my guess… but, well, that’s probably a good thing.

So what is this management team’s newest project?

They don’t give us any of the juicy clues about where their projects or mines might be, just that they’re producing and are doing so in unpopular frontier areas…. but we do get a few clues about the company to help us narrow it down:

“Today, this same team has built a new company that is well on the path to more great successes. Our ‘pioneer pick’ is a growing mid-tier producer that:

  • Bought mining assets at the bottom of the market in 2009 that are now in production and highly profitable;
  • Is sitting on a quarter-billion dollars in cash;
  • Had no write-downs last year (unlike many other producers);
  • Has a big jump in production just around the corner;
  • Best of all, the company’s stock has demonstrated high leverage to the price of gold.

“A large part of our bet is that this team will continue to be successful in the frontier locations where its mines are today. These guys are mining cowboys who aren’t afraid to go where others fear to tread.”

So what’s our quarry? Thinkolator sez that Jeff Clark is teasing: B2Gold (BTG in NY, BTO in Toronto).

B2Gold is run by the folks who built Bema Gold, which was indeed active in Chile and built a world class mine in Russia before being bought out by Kinross in 2007 for, yes, C$3.5 billion.

This is a pretty good-sized mid-tier producer, with doubled production in 2013 largely because they merged with Filipino miner CGA to form what is now a $2 billion company… and yes, they have a bit over $250 million in cash (C$268 million as of the last quarter — largely because they raised about that much with a convertible bond offering over the Summer). They have three substantial producing mines, two in Nicaragua and one in the the Philippines, and the next expected project to come online in 2015 (which usually means 2016) is in Namibia.

These are all pretty good-sized mines, with all but one producing well over 100,000 ounces of gold per year, and they say their all-in sustaining costs for 2013 were estimated at between $1.050-1,100. So yes, they’re profitable — but it’s no surprise that they’re highly levered, since (all else being equal) a company that depends on $1,100 gold would double profits when gold goes from $1,200 per ounce to $1,300. That’s not too far from the average all-in costs for producing miners, from what I can tell, so that doesn’t necessarily make them stand out — but they should have good leverage to both rising and falling gold prices.

And, well, I’m not really a mining guy so I’ll leave it at that — the management team is experienced, they appear to be in pretty good shape as long as gold prices remain OK, with growth coming from new projects and a pipeline of large potential projects going out many years (after Namibia, they also have projects in Burkina Faso and Colombia, as well as some planned exploration/expansion at their existing mines). If you’d like to get a decent picture of their operations, you can scan their investor presentation here. The stock did spike up nicely in the first part of this year, but is still below their highs of last year — and the huge growth in production for last year came from the merger, so that’s not going to repeat, they are guiding for production growth at their three mines of somewhere in the neighborhood of 10-15% in 2014.

So… sound like your kinda investment? Have at it, researchify to your heart’s content, and let us know what you think with a comment below.

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