Brazil Resources: A Gold And Uranium Double Play

Mar.20.14 | About: Brazil Resources (BRIZF)


This small-cap mining stock is a great bet on global growth as well as an effective inflation hedge.

Over the past five years, the company has expanded its total gold resources by nearly 300 percent.

The company also is a play on the uranium market, which is poised for a major upswing.

Here's a fast-growing investment that leverages sanguine future prospects for both gold and uranium: Brazil Resources (OTC: OTCQX:BRIZF), which engages in the acquisition, exploration and development of gold and uranium properties in Brazil and Canada.

Headquartered in Vancouver, Canada, Brazil Resources was incorporated in 2009 and now has a market cap of $49 million. Over the past five years, the company has expanded its total gold resources by nearly 300 percent through acquisitions and now controls resources of the yellow metal that total 3.9 million ounces.

Brazil Resources holds interests in several gold-rich properties throughout Brazil, including those in:

  • Montes Áureos, which consists of an exploration license for nearly 5,000 acres within the Gurupi gold belt in the State of Maranhão in northeastern Brazil.
  • Cachoeira, which the company acquired from Luna Gold (TSX: LGC) and Sao Jorge, which it acquired from Brazilian Gold (OTC: OTC:OTC:BGOZF).

To date, the company has expanded the Sao Jorge project from an initial estimated resource of 343,000 ounces in 2010 to 666,000 ounces, an increase of 94 percent. Cachoeira's resources have expanded from an initial 446,000 ounces in 2012 to 786,737 ounces in 2013, an increase of 76 percent.

Brazil Resources also is a play on the uranium market, which is poised for an upswing. The company holds a 75 percent stake in the Rea uranium project. AREVA holds the remaining 25 percent of the project, which is located in the uranium-rich Athabasca Basin, located in northern Saskatchewan and Alberta Canada.

The Athabasca Basin is the world's leading source of high-grade uranium and currently supplies about 20 percent of the world's uranium. The Rea uranium project encompasses 12 contiguous permits across 88,464 hectares.

Brazil Resources is run by seasoned executives with solid mining experience. Amir Adnani, the chairman and founder of Brazil Resources, is also the chief executive officer of Uranium Energy Corp (NYSE: UEC), a uranium producer. Stephen Swatton, the president of Brazil Resources, is a geologist and former global head of business development for the exploration division of giant miner BHP Billiton (NYSE: BHP).

Poised to Shine

After the yellow metal's dismal performance last year, new data suggest that the threat of inflation is heating up, which means the historic inflation hedge of gold is poised for a rebound.

Inflation expectations are rising and influential investment management firms are sounding the alarm over inflation. And even though the recovery isn't as robust as anyone would like, it is genuine and gaining traction.

In the US, the housing rebound, declining unemployment, loose credit and a still-bullish stock market are making consumers feel more confident and willing to spend. The improving economic climate also is making it easier for corporations to pass along price increases and to make them stick.

US factory activity rebounded in February from an eight-month low and consumer spending increased more than expected in January. The Institute for Supply Management reported that its index of national factory activity rose to 53.2 in February after dropping in January to 51.3. A reading above 50 indicates expansion.

The US Commerce Department reported this month that consumer spending increased 0.4 percent in January after a 0.1 percent gain in December. This improvement was coupled with a surprisingly robust 0.1 percent rise in construction spending in January.

This flurry of encouraging economic news prompted Barclays (NYSE: BCS) to raise its forecast for first-quarter US economic growth by four-tenths of a percentage point to a 2.2 percent annual rate.

Accelerating economic growth, combined with the protracted and quite extraordinary stimulus efforts of the Federal Reserve and other central banks around the world, means that a day of reckoning is probably at hand - in the form of higher inflation.

Gold ended 2013 with a 28 percent loss, but it's ready to regain its luster as investors embrace a commodity that's a classic safe haven during inflationary conditions. Many analysts predict that the price of gold will rise to at least $1,400 per ounce this year, which would be a boon for small-cap miners such as Brazil Resources that enjoy enormous room for growth.

During past inflationary environments, gold mining shares rose faster than the inflation rate. Brazil Resources claims several advantages over its more volatile rivals, including production growth combined with low cash costs, a strong balance sheet, and operating jurisdictions in the modern democracy of Brazil that are politically safe.

Brazil Resources' existing gold assets, combined with its expansion projects, lay the foundation for significant production growth for the rest of the decade.

The time to purchase inflation hedges such as gold mining stocks is now, before the rest of the investment herd belatedly tries to muscle in on the action and boosts their prices.

Glowing Prospects

Then there's uranium. Competitors to Brazil Resources include uranium producers Dennison Mines (NYSE: DNN), Cameco Corp (NYSE: CCJ), Fission Uranium Corp (TSX: FCU.V), NextGen Energy (TSX: NXE.V) and UEX Corp (TSX: UEX.V). All are considerably larger than Brazil Resources, with less potential for outsized growth.

Ever since Japan idled all 50 of its nuclear reactors in the wake of the Fukushima accident in 2011, there has been an oversupply of uranium and a concomitant drop in its price. The spot price of uranium nuclear reactor fuel plummeted from $70 per pound in early 2011 to about $35 as of this week.

But signs indicate that the three-year bear market in uranium is about to end. This month, the Japanese government announced plans to restart some of the country's idled nuclear facilities and intimated that it might even build new ones.

Meanwhile, energy-hungry China is on a nuclear reactor building binge, with 20 reactors in operation and 28 more under construction, four more near construction and nearly 180 in the development pipeline.

In January, China set new targets for its provinces to reduce air pollution by 5 percent to 25 percent. Moreover, at its annual party Congress this month, China's leaders announced specific steps for fighting pollution, including the aggressive pursuit of more nuclear power capacity to replace dirtier fossil fuels.

A total of 72 reactors are under construction around the world, which means long-term demand for uranium is assured. Now's a good time for investors to get exposure to uranium, while the price remains temporarily depressed and producers are undervalued.

Brazil Resources gives investors low-cost exposure to both gold and uranium, before prices for these precious commodities spike.

John Persinos is editorial director of Personal Finance and its parent website, Investing Daily.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.