Buy, Sell or Hold: Six Reasons Claude Resources Inc. (AMEX: CGR) is a ‘Buy’
When I was doing due diligence for my investors, I remember the CEO of an oil and gas company once telling me: “If you want to find oil, it’s easier if you drill where oil has already been found.”
This rule carries with it a lot of truth about geology. However, it works with gold resources just as much as it does with oil. It’s always easier to find gold, where it has already been discovered.
In Canada, the most prolific gold mining district is the Red Lakes District. If you want to find gold, it helps to have ownership in a Red Lake property. It is the heart of high volume gold production in Canada.
The historic Madsen mine was in production from 1938 until 1976. It produced over 2.4 million ounces of gold during that time period. The mine production exceeded 100,000 ounces per year and averaged 0.29oz per ton during its history.
Claude Resources owns 100% of the 10,000-acre location, with its working 4,000ft -plus historic mine shaft, and permitted mill and tailings system. The company will be able to put the property back into operation once its fully dewatered, rehabilitated and new high-grade reserves have been mapped out.
Remember, back in 1989 another Canadian mining company, Goldcorp Inc. (NYSE: GG), purchased the Arthur mine in the Red Lake district. The company reevaluated the geology over the following years, drilled a series of new exploration holes in 1995, and subsequently made one of the largest gold discoveries in history. Red Lake Mine in 2009 produced over 600,000 ounces of gold for an average cost of $288 an ounce, making it one of the richest and cheapest sources of gold on the planet.
The Madsen mine is about six miles from the Goldcorp Red Lake mining operations. Claude Resources has spent the last couple of years dewatering the mine so that new modern drilling rigs can be installed into historic operating levels to increase the known resource base.
The new drilling will allow the company to look for the same types of zones that Goldcorp found in the Red Lake mine complex next door at lower depths than where Madsen was last mined.
Of course, the Madsen mine is not the end all or be all of Claude Resources. For the last 18 years or so, Claude has been mining and producing from the 100% company owned Seabee mine in Saskatchewan, Canada.
The Seabee mine has produced over 900,000 ounces since it was brought into commercial production in December 1991. Claude has found satellite deposits in the Seabee area, allowing them to increase tonnage by adding in volume from the Santoy 8 mine, which they have brought into operation in the last few years.
There are additional areas, along with some very interesting high-grade strikes in deep Seabee, which makes this mining location a long-term asset for the stakeholders of Claude Resources. Seabee operations have produced an average of 45,000 ounces of gold per year, for the last five years.
The Seabee operations were the deepest in North America a few years ago, when I was last in touch with Claude Resources Chief Executive Officer A. Neil McMillan. The property has two mines in commercial operations now, with additional exploration and potential production upside in the area to be developed later.
The Seabee mine has averaged around $700 per oz, for the last three years. This should help the company benefit significantly from rising gold prices.
Finally, Claude has been focusing on getting a controlling interest in the Amisk project in Saskatchewan. This project represents a “blue-sky” opportunity for shareholders. Today, Claude owns a 65% ownership stake in the project and expects to continue its 15-year exploration of the property.
Claude Resources has sold off its historic oil and gas operations, allowing the company to focus on its gold production assets. This has made the company a pure play gold production company with 100% of its assets in Canada.
The management has shown the ability to operate with very low gold prices, and now it will be able to expand the company’s assets with a renewed focus on gold operations.
So, let’s do a quick review of why Claude Resources is a “Buy” in today’s market:
- It has produced over 900,000 ounces of gold from its 100%-owned Seabee operations.
- It has 100% ownership of the historic Madsen mine.
- It has a majority stake in the Amisk gold property.
- It averages 45,000 ounces of production per year from Seabee.
- It’s profitable and self-funded.
- And its historic cost per oz of gold is about $700, which gives the company serious leverage to higher gold prices.
Claude Resources is a small-cap company, with plans to grow to mid-cap status, while owning big-cap assets. I have always liked companies that are growing their assets, investing in future growth, and in control of their own destiny. Claude Resources has all of those features.
Actions to Take: Claude Resources is one of those rare investments, where you have a long-term operating resource with open-ended reserves, a historic operation that is being rehabilitated for future production, and a blue-sky project.
Claude Resources Inc. trades about 471,000 shares a day. While liquidity is good for such an under the radar stock, we don’t want to be too aggressive buying it.
So let’s pick up 50% of our position at market, and then let’s put in some limit orders 10-20% lower in case the stock pulls back (**).
(**) Special Note of Disclosure: Jack Barnes holds no interest in Claude Resources Inc. This article was first published Monday Morning, at Money Morning.