AURICO GOLD (Toronto symbol AUQ; www.auricogold.com) operates the El Chanate gold mine in Mexico, which produced 71,864 ounces in 2013. The company’s Young-Davidson gold mine in Northern Ontario reached full production in 2013, with total output of 120,738 ounces. The project’s output should rise to over 152,000 ounces this year. In the three months ended December 31, 2013, the company’s revenue fell 19.5%, to $50.8 million from $63.1 million a year earlier. Cash flow declined to $0.07 from $0.11. Higher gold production was more than offset by lower prices. The company has cash of $142.7 million, or $0.58 a share. The stock yields a high 3.5%.
Mining stocks: Amerigo share price rises despite drop-off in copper prices
AMERIGO RESOURCES (Toronto symbol ARG; www.amerigoresources.com) processes copper and molybdenum from waste rock at Chile’s El Teniente, the world’s largest underground copper mine. This includes rock from the mine’s current production, and tailings from the nearby Colihues deposit. This contract runs at least through 2037. Amerigo gets 94% of its revenue by processing copper. The remaining 6% comes from molybdenum. A landslide in one of Amerigo’s production areas has hurt its copper and molybdenum production. In the quarter ended December 31, 2013, copper output fell 9.7%, to 12.25 million pounds from 13.56 million a year earlier. Molybdenum production declined 37.6%, to 181,464 pounds from 290,775. However, these operations are now recovering, and production growth is returning to normal. Amerigo has just reached an agreement to process material from the Cauquenes tailings deposit, located near its current operations. This is a big growth project for Amerigo: the company expects it to help double its production in 2016, to 90 million pounds. The Cauquenes expansion will cost $140 million. However, Amerigo has used its cash flow to pay off all of its debt over the last few years, and it currently holds cash of $13.1 million. This gives it the financial flexibility to borrow the money it needs for Cauquenes from Chilean banks. The shares have moved up from a low of $0.31 in early December 2013 to their current level of $0.51, even though copper prices have dropped to around $3.05 U.S. a pound from $3.35. In the latest edition of Stock Pickers Digest, we look at whether AuRico will be able to maintain its high dividend based on its projected output and cash balance. We also consider the long-term outlook for copper prices and whether that will push Amerigo’s share price higher. We conclude with our clear buy-hold-sell-advice on these two stocks. (Note: If you are a current subscriber to Stock Pickers Digest, please click here to view Pat’s recommendation. Be sure to log in first.) If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members When you invest in junior mining stocks, do you stick with those that already have mines in production? Other than production start-up, what other indicators do you look for? Have you ever taken a chance with a stock that was still years away from opening a mine? Would you do it again?
