AuRico Gold: Another Safe Mining Stock To Buy

| About: AuRico Gold (AUQ)
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I believe 2012 could finally be the year of gold mining stocks, a much anticipated event amongst gold bugs who believe there is one bubble left in the system before a political re-organization, led by the introduction of a new currency, comes about as part of reconciling the global debt crisis.

And so, from this perspective, the hunt is on for gold mining stocks that can generate profits and dividends needed to attract an influx of capital seeking safety.

All of which leads me to AuRico Gold (NYSE:AUQ).

Here's the story:

AUQ currently has a market capitalization in excess of $2.4 billion, which offers shareholders a bit of the classic risk/reward tradeoff: companies past the $1 billion mark offer more safety as they have already attracted investors and typically have robust operations not prone to an instant and total collapse -- but there is less room for upside as well, and the truly huge, 10,000% type gains are much, much more likely with stocks below $500 million in market capitalization. But the risk/reward to market capitalization relationship is a sliding scale; the upside on AUQ, for instance, is greater in my opinion than that of companies like Newmont, Barrick, and Goldcorp, all of which have a market capitalization of at least 10X what AUQ does. So while AUQ is past the point of being very high risk/very high reward, it's still a growth opportunity.

In terms of key financial metrics, AUQ has positive earnings and a P/E ratio of just over 11. It's price to book ratio (including goodwill and intangibles) is 2.18, while its current ratio is 3.78. Moreover, earnings are growing; Q3 2011 was more than double Q2 2011 ($0.36 EPS vs ($0.15 EPS), and the company is reporting that Q4 revenue is up over 38% from the prior quarter. These numbers are what really drove me to AUQ; the growth in earnings, balance sheet stability, and such a low P/E ratio make this an appealing option even for those who are not gold bugs.

As for downsides, AUQ does report a cash cost of $680 per gold equivalent ounce; this is a bit higher than many other firms I've seen in the mining industry, though as I believe the gold price has bottomed in the near term and that we're still hanging around $1,650, I do not find the situation to be bleak.

AUQ is still exploring and still has mines set to come on board; the first gold pour from a new project (the Young-Davidson project) is slated for end of Q1 2012.

I'm particularly pleased to see the company truly focused on gold; silver is only a small component of its operations. For gold bugs who want gold miners alone, this is another area where AUQ stands out. While I recently have taken a liking to silver stocks, I do appreciate the focus on gold here and think it will be yet another factor that helps AUQ differentiate itself relative to peers. AuRico CEO Rene Marion has stated he is more focused on gold than on silver, viewing silver only as a by-product, and is focused on getting AUQ past the 1,000,000 ounce mark for gold by 2015.

Last but certainly not least is the technical situation. AUQ is currently trading at $8.65; its 52 week range is from $7.05 to $14.17. As we are still near the bottom of the 52 week range, I view this as a great buying opportunity. I look forward to adding AUQ to my portfolio in the very near future.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AUQ over the next 72 hours.