Last week, Brazil Resources (BRI.V) announced game-changing news…
BRI is a small gold exploration company with several projects located in the U.S., Canada, and Latin America. Over the past few years, they’ve used one of the worst bear markets in the history of the resource sector to acquire these gold assets for pennies on the dollar.
One of these acquisitions took place last month. BRI purchased the Titiribi Project in Columbia from gold exploration play NovaCopper. This asset sits along the Mid-Cauca Porphyry Belt. That’s home to over a dozen major gold projects, including one that holds over 28 million ounces of gold.
Last week, an independent, world-class consulting firm reported that Titiribi is estimated to hold nearly 8 gold equivalent ounces (GEO). GEO is the value of a company’s gold, silver, copper and other metals combined and then converted into a gold equivalent. This is 60% higher than the Street was expecting.
Shares popped 8% on Sept. 15 following the news. This is on top of the exceptional returns BRI shareholders witnessed in the stock since February.
Despite the recent gains, it’s not too late to invest in BRI. Based on my estimates, the stock still has at least another 263% upside if gold prices continue to push higher over the next 18 to 24 months.
Those who have followed my research over the years should be familiar with Brazil Resources. I’ve been a big fan of the company for a long time. Over the past nine months alone, shares are up nearly 600%.
To be fair, most resource stocks are up big this year. However, BRI has outperformed most junior exploration companies. That’s because they’ve been increasing their gold reserves faster than any company on the planet.
Chairman Amir Adnani started this quest in 2013…
That’s when BRI started buying distressed gold assets. It was a great strategy, considering most gold companies were saddled with debt. Once gold prices started to fall (starting in 2012), these companies had to unload some of their best assets to service their debt.
Amir used the bearish market conditions to purchase BRI’s first distressed asset. It was the Sao Jorge project located in the Para State in Brazil. It’s a low-cost mine located less than two miles from major highways and power lines. After this acquisition, BRI was sitting on just 3.9 million ounces of gold.
After a series of acquisitions, BRI is one of the largest gold exploration and development companies in the world. Its portfolio amounts to more than 18 million ounces!
This includes the recent purchase of the Titiribi Project. BRI bought this project for less than C$12 million in stock – an incredible bargain. Just a few years ago (during the bull market in resources), this asset was valued at more than C$300 million.
The Titiribi asset is a game-changer for BRI…
And as you can see from the graph below, the company’s gold is trading at a tremendous discount to its peers. In fact, each one of BRI’s ounces in the ground is being valued at just $11…
You can also see from the graph above, Goldcorp, a leading Canadian producer, acquired junior gold play Kaminak this May. Goldcorp paid $74 an ounce for the Kaminak’s gold in the ground.
National Bank (second from the bottom) values the gold in the ground for its “Explorers Index” at close to $40 an ounce. This is about the average price paid for gold in the ground dating back to the 1990’s.
Of course, this is not an apples-to-apples comparison. Some mines could have much higher grades and may already have infrastructure (roads, electricity, water) in place. These costs could add millions of dollars in costs to any project.
However, BRI’s projects are located in mine-friendly areas. There were tens of millions of dollars in drilling and exploration already performed on most of its projects. Based on these factors alone, BRI should be trading at a premium to most exploration and development companies.
If we value BRI’s 18 million gold ounces at the industry average of $40, the company’s stock should trade for over 250% more than it does today.
That means BRI should be trading north of C$9.00 a share. That’s a huge move, considering shares are trading roughly C$3.00 today.
Valuation is not the only reason to buy shares today.
Some of the greatest names in mining are big owners of BRI. This includes legendary resource investor Rick Rule, who calls Amir, “one of the next great executives in the mining industry.” Renowned speculators Marin Katusa and Doug Casey are also large shareholders.
Yet, one of the biggest owners of the stock is Mario Garnero.
Garnero is chairman of Brasilinvest Group, a private merchant bank he created in 1975. The company manages over $6 billion. And his smart investment decisions helped Garnero accumulate a net worth of $1.3 billion.
Some compare Garnero to billionaire fund manager Carl Icahn. But that would be doing him a disservice. You see, Garnero is much more than a successful investor. He is a pioneer.
Ganero was the first person to bring mobile phone technology to Brazil. He was chairman of the National Automakers Association – where he pushed for ethanol to become a major fuel for cars in his country. This earned him the nickname: “Father of the Ethanol Car in Brazil.”
For the past 50 years, Garnero has played a constructive role in most historical processes related to Brazil. He’s done this by establishing relationships with some of the most influential people in the world… including U.S. presidents George Bush, Ronald Reagan, Bill Clinton, and former German Chancellor Helmut Schmidt – and even David Rockefeller.
BRI has an all-star group of insiders who own 30% of the company. More important, none of these insiders have sold a single share of it. That’s incredible considering BRI is up over 600% in nine months.
Insiders would only maintain their full position in BRI for one reason…
It’s because they believe BRI still has plenty of upside. And it’s difficult to disagree, given BRI’s 18 million ounces of gold is being valued at just $11 per ounce.
My advice is to purchase BRI on any pullback. The stock could double from these levels based on valuation alone. And if gold prices continue to trend higher over the next 18-24 months – as many experts predict – BRI’s stock could easily surge well above 250%.
As always, thank you and good investing!