“Top Pick of the Year: Tiny $2 Canadian Stock Could Make You a Million …” (Lombardi)

by Travis Johnson, Stock Gumshoe | May 31, 2011 10:27 am

Identifying the gold miner teased by Resource Stock Millionaire

Our latest ad rolls in on a tide of resource riches lust — it’s for the new natural resources-focused newsletter from Lombardi called Resource Stock Millionaire … which sounds a lot like their older letter, Explosive Mine Stocks, though this one will be edited by Mitchell Clark (who we’ve written about before, mostly when he’s been teasing penny stocks of various stripes — I think this is his first resources-focused letter and don’t know what his expertise in the field might be).

The various Lombardi letters have teased about a couple gold stocks over the past year or so — most often the giant gold “blue-chippers”[1] and smaller Gold Resource Corp (GORO)[2], but this one is quite a bit smaller still … here’s how they introduce the idea:

“An Investment Opportunity so Rare, Most Investors Will Only Have This One Chance to Cash In

“One-hundred-thousand-ounce gold producing Canadian stock trading under $2…called top pick of the year by Resource Stock Millionaire

And then later on in the ad, they throw out some more details to sweeten the pitch (and, thankfully, provide us with a few clues):

“Resource Millionaire Stock #1: Riding the gold trend higher

“87,661 ounces of gold in 2010.

“That’s a lot of gold…in fact, it’s about $120 million worth of gold at today’s prices.

“But you won’t find articles on this small company in The Wall Street Journal or on Bloomberg…it’s too small and Wall Street still can’t touch it…but you can.

“And to think, you can get in on that gold production for less than $2 per share. That’s right; we’ve found a gold stock that is actually producing gold…and selling it on the open market…and yet the stock is trading at less than $2 per share.

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“What’s more, we fully expect production to increase to 100,000 ounces in 2011. Which means that even if gold prices stayed exactly the same, the company could add an additional $18 million to its revenue this year alone.

“Then consider that the company is on track to produce 200,000 ounces over the medium term (double the current production) and it’s easy to see why industry insiders are excited about the prospects of this small company.

“However, if gold should continue its rise to $1,500/oz or even to $1,750/oz, this small mining stock could see profits explode!”

So who is this little gold miner that Resource Stock Millionaire is calling the “top pick of the year?”

Toss all that info into the Thinkolator and we get our answer quick enough: Avion Gold Corp (AVR in Toronto, AVGCF on the pink shets).

And it is a small gold miner, but it’s not tiny — and it is profitable. Market cap is right around $600 million, and they reported earnings of nine cents per share … so at about $1.50 per share that’s a trailing PE ratio of right around 17. They trade on the OTCQX for US investors, so that provides a little bit more confidence and liquidity than you sometimes get for foreign stocks — and unlike for other pink sheets listings you will usually see solid financial info in the aggregator sites like Yahoo Finance for stocks like Avion that have this “upgraded” listing. Doesn’t guarantee anything, of course, but it’s a nice bonus.

Avion Gold is a miner in West Africa that was built on some very recent acquisitions — their core assets in Mali were purchased in May, 2008, just as gold was retreating from its first attempt to breach $1,000 an ounce. They also hold another property in Mali, and late last year acquired a property in Burkina Faso that they’re drilling now to firm up their resource estimate, but the primary property of interest is their Tabakato & Segala property, which consists of two open pit mines that are currently producing and the underground mines that they are now trying to build to get at the deeper resources, along with a mill and processing plant that they’re working to expand now.

Future growth depends on the underground mines at Tabakato and Segala as well as the exploitation of their other potential mines in Mali and Burkina Faso — they report overall measured and indicated resources at Tabakoto, their biggest asset, of about 1.2 million ounces, but almost a million of that is from the underground mine. Several of their other assets also carry measured and indicated resources, though despite the fact that these are producing mines they don’t seem to have upgraded anything to “proven and probable” and booked them as actual reserves. Don’t know enough about mining to know why, or if that’s particularly important in this case.

Avion seems to have plenty of cash, and they have a relatively aggressive exploration campaign underway for both their underground mine expansion on existing sites and their other properties. Last year’s production was entirely from open pit mines, but they predict that this year they will indeed mine about 100,000 ounces, with roughly a third coming from underground mines (and yes, last year’s number was 87,661 ounces). They also do say that their goal is to be at a 200,000 ounce/year “run rate” by 2012, but it looks from their projections that this means they’ll be producing at that rate very late in 2012, with projected production of about 160,000 ounces in 2012 and 200,000 in 2013. Which would indeed be pretty impressive, especially if gold prices remain high — they project their cash costs to remain under $600/ounce even with the move to rely almost entirely on underground mining by 2013, so they should be able to squeeze a pretty good profit even after expansion costs if they can generate a $900 gross margin ($1,500 gold minus $600).

The charts in their presentation indicate that the 200,000 ounce production rate is about the best they’ll be able to do, since they use that as their projection through 2022. You can see their latest presentation from the annual meeting here[3], which includes the update that they are above 20,000 ounces of production for the first quarter, and they’ll be announcing the first quarter earnings on Thursday if you’d like to wait to get a fuller update.

I’m not particularly interested in adding another gold miner to my portfolio right now, but this does at least look like an interesting lead — a decent-sized, profitable company with current production growth in a mining-friendly jurisdiction and substantial production growth expected over the next two years, and with some potential properties nearby that, though earlier in the exploration stage, might be able to generate growth in subsequent years. There may well be monsters lurking somewhere, but so far I’ve just spent a few minutes scanning the company’s presentations and recent releases — if you see something that excites or worries you about Avion, please let us know with a comment below.

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  1. giant gold “blue-chippers”: http://stockgumshoe.com/2010/09/what-is-the-safest-gold-stock-on-the-planet.html
  2. Gold Resource Corp (GORO): http://stockgumshoe.com/2010/08/tiny-gold-stock-declares-first-ever-special-cash-dividend.html
  3. latest presentation from the annual meeting here: http://www.aviongoldcorp.com/Investors/Presentations-and-Webcasts/Event-Details/2011/Avion-Gold-Corp-Hosts-Annual-General-Meeting-Click-here-for-details/default.aspx
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  1. Avatar
    May 31 2011, 12:49:01 pm

    I hold the stock along with others – my comment is to be prepared for a hit to commodities coming this summer. The recent corrections simply represent the "A" in an "A-B-C typical correction. We are now experiencing the "B" wave, so be prepared for "C" taking metals and other commodities back down. I suspect GOLD will be the least affected, but that will present the best buying opportunity.

  2. Avatar
    May 31 2011, 05:08:05 pm

    I'm a long time holder of AVR and have been happy with their performance despite a lack of real investor excitement. They took over Tabakoto and Segala from Nevsun and have really turned around the mines. Their priority has always been production, unlike the plethora of wannabes who will never develop mines, so establishing provable reserves has never been at the forefront. As an actual developer of mines they are entirely self-funded so none of that persistent drip, drip, drip of dilution. The market will take notice eventually, as it always does with quality in the long run.

  3. Avatar
    May 31 2011, 07:15:22 pm

    Avion also has top management, folks, who really know what they are doing. Which is why they have been able to raise the funds that they have. They have enough $'s in the kitty now to see this through, without going back and diluting their shares. Good Company and very well run. For another sleeper check out PYZRF.

  4. Avatar
    Jun 8 2011, 09:52:42 am

    Consider Timmins Gold (TMM.TSX) a steal at $2.40
    1) Results of the 1st Year of Production (April 2010 to March 2011). show ongoing improvement, Increased ounces of gold produced month over month, and lowering of the cash cost
    2) Imminent announcement of the retirement of the Sprott $19,000,000 gold loan in August.. A debt-free gold producer on track to net $100 million to $120 million per year is going to be a veryattractive investment – shielding us from a steep dip if the overall stock market tanks
    3) The current market cap is only $330 million! A forward P/E of 3!
    4) Recent drill results doubled the resource
    5) Currently drilling at the rate of 35,000 meters per month! This is very aggressive because many miners would be happy to drill as much in a year.

  5. Avatar
    Jun 8 2011, 09:53:57 am

    Consider Timmins Gold (TMM.TSX) a steal at $2.40 (contd..)
    6) If CEO Bruce's forecast of $10 drilling cost/proven ounce is maintained, or a little higher (allowing for increased energy costs to say, for example, $2.50 per proven ounce), then the $2 million-per-month outlay on drilling costs should increase TMM's proven reserves by approximately 150,000-to-200,000 ounces per month, and thereby extending mine life by approximately 2 years for each month of the drilling campaign at current budget levels.
    7) Positive results from drilling from TMM's portfolio of exploration properties outside of the San Francisco mine could provide enhancement to the share price.Enter text right here!

  6. Avatar
    Billy John
    Oct 21 2011, 04:53:53 pm

    I would definitively consider Timmins Gold before. I visited the mine site earlier this year and it is a real joke. The managers up there don’t know what to do and it’s a total mess. They got three deaths in less than one year. The managers can’t find the “grade” it is why they don’t get the target for the last quarter. They try to growth too quickly. I spoke with workers up there as well/ no confidence in the managers. The company can’t pay their bills.

    I had 35,000 shares and sell everything. No ethics, no respect, bad management. For junior, go with PRO-C, ETG-C or either SUE-C. Forget about AVR-C.

  7. Avatar
    st0ck watcher
    Feb 27 2012, 12:27:24 pm

    I would watck lake shore gold corp. They just had a big injection from FRANCO NEVADA 50million plus some for shaes and some for royalties from future production. Lake shore has just recently announce upgraded drill results as well. They are located in the Timmins area of Northern Ontarios gold belt. Currently trading at 1.62 per share. They have no debt, they are a producing mine, and have their own processing plant

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