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Summary

  • Chaparral Gold's Q2 earnings reflect the company's fiscal conservatism with a loss of just $0.55 million.
  • The company is bringing its Gemfield Project forward on the permitting front while concurrently pursuing "strategic alternatives" in order to maximize shareholder value.
  • The former point speaks to the company's realistic path towards production of a low-cost gold mine in Nevada, a central point of my investment thesis from last month.
  • I still consider this to be a compelling investment with near-term cash-flow potential and leverage to the gold price.

Chaparral Gold (OTC:CRRGF) just announced its second quarter earnings. For a company in Chaparral Gold's position earnings reports are more about displaying progress than about updating actual financial numbers, although I want to praise the company for losing just $0.55 million in the second quarter, a point that suggests that the company is committed to a fiscally conservative strategy that will benefit shareholders in the long run. The company also mentions that it is moving forward with permitting its smaller yet currently economical Gemfield Project. This project is about 2 years away from production as the company has to get its final permits and find financing.

The company also announced that it is pursuing "strategic alternatives" (aka it is looking for a buyer). This comes after it received a hostile takeover bid from the Waterton Precious Metals Fund. One can easily see why the company would be attractive to a mid-tier producer considering that it has a smaller, low cost project in Nevada and a larger, high leverage project, which is also in Nevada--a low risk mining jurisdiction.

I point these facts out in my recent article on the company. The Chaparral Gold's fiscal policy is very impressive and speaks to management's devotion to shareholders. While I overlooked it last month as it is a minor issue in the broader context of the asset it is worth highlighting as saving a few hundred thousand or even a million dollars every quarter can really pay off in the long run, especially as the company will likely have to dilute shareholders in order to receive financing.

The stock has risen about 5% since I recommended it, but as I argued, the potential upside is considerably greater, and this is one of the better ways for investors to play rising gold prices, especially if they don't want to take a lot of risk with a highly indebted company or a company with substantial political risk. It uniquely combines the prospect for near-term cash-flow with substantial gold price leverage, making it especially appealing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in CRRGF over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Chaparral Gold's Q2 Earnings

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