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Claude Resources: A High Grade Gold Producer Trading Below Book Value

July 21, 2014 | About:
Markus Aarnio

maarnio

2 followers

1 The Company

Claude Resources (CLGRF) is engaged in the acquisition, exploration, and development of precious metal properties in Northern Saskatchewan, Canada.

Number of shares

188,155,978

Number of options

7,936,361

Fully diluted number of shares

196,092,339

Share price

$0.24

Market cap

$45.2 million

Enterprise value

$64.6 million

P/S

0.7

P/B

0.4

Ticker

TSX:CRJ,CLGRF

1.1 History

Claude Resources was founded in 1980. Claude commenced mining at Seabee in December 1991. Since 1991, Claude has produced over 1,000,000 ounces of gold from the Seabee Gold project.

1.2 Business Model

The company's goal is to create and deliver outstanding stakeholder value through the exploration, development and mining of gold and other precious metals.

1.3 Mines

Claude has two properties both of which contain over one million ounces of gold in the ground inventory.

claude-resources-inc-corporate-presentation-march-2014-3-638.jpg

(Source: Investor presentation)

Seabee Gold Operation

Claude’s revenue generating asset is the Seabee Gold operation, which is located in the La Ronge Mining District in Canada.

nimetön.png

(Source: Claude)

The Seabee Gold operation consists of two producing mines, the Seabee Gold mine and the Santoy 8 Gold mine.

nimetön.png

(Source: Annual report)

The Seabee Gold operation had a Proven & Probable reserve of 422,900 ounces of gold, an Indicated resource of 175,200 ounces and an Inferred resource of 582,900 ounces as of November 2013.

nimetön.png

(Source: Annual report)

Amisk Gold Project

The Amisk Gold project is located in Saskatchewan near Flin Flon, Manitoba, Canada, and consists of 40,373 hectares.

nimetön.png

(Source: Annual report)

The Amisk Gold project currently has an Indicated resource of 921,000 ounces of gold and an Inferred resource of 645,000 ounces.

nimetön.png

(Source: Annual report)

Amisk is not yet producing gold.

2 Management

The CEO Mike Sylvestre has over 35 years of mining experience. Mike Sylvestre has been CEO since April 2014. Mike Sylvestre became the interim President and CEO following the retirement of Neil McMillan on March 31, 2014.nimetön.png

(Source: Investor presentation)

2.1 Insider Ownership

Claude’s directors and executive officers own 0.2% of the company.

Here is a table of Claude’s insider activity by calendar month.

 

Insider buying / shares

Insider selling / shares

July 2014

0

0

June 2014

27,500

0

May 2014

14,500

0

April 2014

0

179,754

March 2014

0

0

February 2014

0

0

January 2014

0

0

December 2013

0

0

November 2013

0

0

October 2013

0

0

September 2013

0

0

August 2013

0

0

July 2013

60,000

0

June 2013

108,000

0

May 2013

0

0

April 2013

500

0

March 2013

0

0

February 2013

20,000

0

January 2013

77,200

0

(Note: The table does not include shares purchased pursuant to a purchase/ownership plan. There have been 538,107 shares purchased pursuant to a purchase/ownership plan during a February 2013 to February 2014 time period.)

There have been 307,700 shares purchased and there have been 179,754 shares sold by insiders since January 2013.

2.2 Compensation

Here is a table of the management’s compensation during the last three years.

nimetön.png

(Source: Management Information Circular)

The management’s compensation has followed the share price during the last three years.

sc.png

3 Operating Summary

Here is a table of Claude’s annual gold production since 2009.

Year

Annual production (ounces)

2009

46,827

2010

47,270

2011

44,756

2012

49,570

2013

43,850

The gold production has averaged 46,454 ounces since 2009.

nimetön.png

(Source: Claude)

4 Financial Summary

4.1 Current Situation

Claude reported the first-quarter financial results on May 8 with the following highlights:

Revenue

C$15.6 million

Net loss

C$5.1 million

Cash

C$4.7 million

Debt

C$27.3 million

Gold production

11,344 ounces

Total cash cost

C$978 per ounce

The gold production increased 40% compared to the first quarter of 2013.

nimetön.png

(Source: Investor presentation)

The second-quarter production results were even better. Claude produced 18,742 ounces during the second quarter, representing a 51% increase over the 12,438 ounces produced in the second quarter of 2013.

nimetön.png

(Source: Press release)

4.2 Historical Developments

Here is a table of Claude’s revenue and earnings since 2009.

Year

2009

2010

2011

2012

2013

Revenue (C$ millions)

48.5

56.0

69.7

80.8

63.8

Net income/loss (C$ millions)

-6.3

+10.3

+9.5

+5.6

-73.4

EPS

-0.06

+0.08

+0.06

+0.03

-0.42

Claude reported C$63.8 million of impairment charges in 2013.

5 Shares

Here is a table of Claude’s number of shares since 2009.

Year

2009

2010

2011

2012

2013

Number of shares (millions)

108.5

138.9

164.6

173.7

175.8

Claude’s number of shares have grown 62% since 2009.

6 Outlook

Claude’s gold production forecast is between 47,000 to 51,000 ounces for 2014. The company has already produced 30,086 ounces of gold during the first six months of 2014.nimetön.png

(Source: Investor presentation)

7 Risks

The two main risks are negative earnings and the gold price. Claude reported a net loss for the first quarter, but has increased the gold production during the second quarter. The total cash costs are C$978 per ounce, which is well below the current gold price. Claude is also a penny stock.

8 Conclusion

Claude is currently trading at a P/B ratio of 0.4 and a P/S ratio of 0.7. I believe the stock could have at least 100% upside potential during the next 12 months.

nimetön.png

(Source: Investor presentation)

Disclosure: The author is long CLGRF

About the author:

maarnio
I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

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