Adrian Day: Virginia Mines (VGQ)

By Steven Halpern, TheStockAdvisors.com | Jan 06, 2010 | comment

"Virginia Mines (Toronto: VGQ) is my favorite gold explorer," says Adrian Day. In The Global Analyst says,  "It has a successful track record, top management and a super-strong balance."

"Virginia Mines has a successful track record, having discovered and subsequently sold to Goldcorp, the rich Eleonore deposit in northern Quebec.

"This discovery saw the stock go from the $2 range to the mid-teens.  Following the sale (which saw a spin out to shareholders), the stock is in the low $5s, ready to try again.

"Exploration by its nature is very high risk, with very long odds of discovery. Most companies finance their exploration by continual equity offerings, which mean dilution for shareholders even if they are successful. 

"Virginia has a different way: it is a prospect generating, looking for prospects, often by staking the ground, doing some exploration, and then looking for a joint venture partner. 

"The partner spends the high-risk exploration dollars in return for a majority ownership in the property. This results in a low-risk business model.

"Even though the company gives up most of the property, it holds on to its balance sheet and by doing this over and over, can build a portfolio of properties in which it owns minority interests with someone else spending the money.

"As Virginia has grown and built a strong bank account (it has has $44 million on its balance sheet), it is now in a position to do a little more exploration than in the past.

"This enables it to sift through its projects, and by advancing them more, obtain better deal terms.

"Virginia has build a broad portfolio of projects, all in mining-friendly Quebec, in a range of metals and minerals, but emphasizing gold.

"Right now, it has six properties ready to drill over the winter season, all in the prospective but under-explored James Bay area. Some of these are very close to the Eleonore discovery, on ground not included in the sale to Goldcorp.

"Virginia is spending the money on four of these properties, with two being funded by partners.  Some have brand new targets being drilled, others following up on previous drilling.

"While exploration remains long odds, Virginia has as good a shot as any, and at minimum, we expect the next six months or so to generate a lot of news on these properties that should see the stock buoyant.

"Any positive exploration results will see it move much higher.  In the meantime, you can buy a fine company at less than NAV.

"Just the value of the royalty it retained on Eleonore and its cash in the bank are worth more than the entire market cap. All the exploration comes free.

"So you can buy a great company at below NAV. Despite the move up in the stock price in recent months, this is an excellent time to buy, ahead of this aggressive drilling campaign.  We expect 2010 to be very good for Virginia and its shareholders."

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