by Travis Johnson, Stock Gumshoe | May 31, 2011 10:27 am
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” and smaller Gold Resource Corp (GORO), 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.Are you getting our free Daily Update
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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, 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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