Gold mining stocks have had a bit of a roller-coaster year. Gold mining stocks languished behind the broader market until August, when rumors of the oncoming stimulus package by the Federal Reserve brought them back to life. Gold mining stocks were, and still are, clearly undervalued, based on the fundamentals of the commodity itself. There are numerous gold mining stocks, so an investor has to carefully consider all factors before committing to a stock.
One of the more interesting gold mining stocks that have pulled back is Aurizon Mines Ltd. (NYSE MKT/AZK). This is one of the few gold mining stocks with properties in Canada, a country that has been quite favorable towards this sector for a long time. Aurizon continues to perform exploration work on its properties, and is quite optimistic about what they might yield.
The firm reported results for the third quarter of 2012 that did disappoint the market. Aurizon reported net profit for the third quarter of $5.5 million, as compared to $13.1 million during the same quarter in 2011. The reason for the shortfall was due to several reasons. The company stated the initial shortfall was due to lower ore grades; however, further drilling by the firm has determined this is an isolated occurrence. The company also incurred four days of zero production due to the replacement of a shaft cable. (Source: Press release, “Aurizon Reports Third Quarter 2012 Financial Results,” Aurizon Mines Ltd., November 8, 2012.)
The company is currently incurring a transition phase for its mine, and this will disrupt production. The needed infrastructure installation will mean lowered gold production over the next 18 months, but long-term, the firm strongly believes in the potential of this property. The President and CEO, George Paspalas, stated in the financial report that following the end of the transition period, he expects to have production levels back up to historical norms.
Setbacks can occur when investing in gold mining stocks. The key is to look for long-term opportunities. While short-term investors are exiting this stock, those interested in long-term potential for gold mining stocks might want to put this company on their radar over the next few months. As the firm progresses in transitioning and adding infrastructure, the closer it comes to resuming full production, the more interested I am in potentially investing in this firm.
Another consideration when looking at gold mining stocks is the level of cash per share, as well as debt levels. This is a company with essentially no debt and approximately $203.0 million in cash, which is equivalent to $1.24 per share. For stock trading at $3.87, this represents a large percentage of the share value in cash.
Chart courtesy of www.StockCharts.com
This is a three-year weekly chart of Aurizon. The latest setback due to production issues is certainly pulling back the stock to multi-year lows. Generally, I do not suggest buying at or near such low levels. What I do recommend is keeping an eye on this stock, as well as other gold mining stocks that pull back significantly, due to short-term reasons. The key is to wait patiently for the fundamentals to begin to turn.
The company still has significant hurdles ahead of itself, and I would need to see further developments in its transition phase that needs to be completed before I would consider investing. I do like the large amount of cash per share on hand. Gold mining stocks can be volatile, and as such, one needs to be careful to be well-diversified and cautious when accumulating any stock. Most likely, the stock will not be that active until further fundamental developments and upgrades to the infrastructure are completed.
No comments:
Post a Comment