Penny Stocks: New operation set to expand cash flow for Amerigo Resources

Amerigo Resources will nearly double its copper output this year at the same time it dramatically cuts its production costs.

AMERIGO RESOURCES (Toronto symbol ARG; www.amerigoresources.com) processes copper and molybdenum from the waste rock of the El Teniente mine in Chile; that’s the world’s largest copper operation.

In the quarter ended March 31, 2016, Amerigo’s copper production jumped 45.0%, to 12.86 million pounds, at a cost of $1.82 per pound. A year earlier, output was 8.86 million, at a cost of $2.33 a pound.

Cash flow rose 21.7%, to $1.4 million, or $0.008 a share, from $1.2 million, or $0.007 a share. The gains came because the company started processing tailings from its new Cauquenes deposit in late 2015.

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Penny Stocks: Cauquenes expansion will cost $140 million

Cauquenes is a big growth project: Amerigo expects it to help double its production in 2016, to 90 million pounds of copper. Phase 1 is now in operation at a rate of 30,000 tonnes per day, and Amerigo expects that to rise to 60,000 by the end of this year, bringing the company’s overall output to over 70 million pounds of copper annually.

The Cauquenes expansion will cost $140 million in total. 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 $18.3 million. This gave it the flexibility to arrange bank financing in Chile for Cauquenes.

Copper prices have fallen from over $4.50 U.S. a pound at the start of 2011 to just $2.09 today. In the near term, the metal’s outlook is uncertain. But longer term, an improving global economy and unsteady supply should push copper prices higher.

Recommendation in Stock Pickers Digest: BUY for aggressive investors.

For our advice on how to reverse the odds and cut your risk with penny stocks, read 14 tips for investing in Canadian penny stocks.

For our recent report on a penny stock that is making headway in its niche market, read Carmanagh Technologies Corp. returns to profitability.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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