In our newsletter for the aggressive portion of your portfolio, Stock Pickers Digest, we select a Pick of the Month. In the most recent issue, our choice was one of the penny stocks we cover, a copper company that is active in Chile.
AMERIGO RESOURCES (Toronto symbol ARG; www.amerigoresources.com) processes copper and molybdenum from the waste rock from Chile’s El Teniente, the world’s largest copper mine. The contract runs at least through 2021. Amerigo also has an agreement to process material from the nearby Colihues tailings pond.
The company gets 94% of revenue by processing copper. The remaining 6% comes from molybdenum.
In the three months ended September 30, 2012, Amerigo’s revenue rose 5.4%, to $44.2 million from $42.0 million a year earlier (all figures except share price in U.S. dollars). The company offset lower copper and molybdenum prices by producing more of both metals.
Cash flow fell 40.7%, to $2.7 million, or $0.02 a share, from $4.6 million, or $0.03. However, that’s largely because the company paid a one-time, $4.6-million bonus to its Chilean workers on the signing of a new four-year labour agreement.
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New electricity contract should boost Amerigo’s cash flow
Electricity is a big expense for Amerigo, but it has a new power contract that started on January 1, 2013, at much lower rates than it was previously paying. As a result, Amerigo will save more than $20 million annually over the next five years. That should significantly improve its cash flow.
The company pays a semi-annual dividend of $0.02 (Canadian) a share. That gives the stock a high 6.2% yield. Amerigo’s dividend payout is just $3.4 million every six months, so its dividend is well covered by its cash flow. It also holds cash of $35.6 million.
Amerigo Resources is more speculative than many of our picks of the month. The stock is a buy, but for aggressive investors only. The shares of Amerigo are already up over 6% since we selected it last month. We will continue to update our advice on the prospects for further gains by Amerigo and the outlook for copper in subsequent issues of Stock Pickers Digest.
Instead of our Pick of the Month, our next issue of Stock Pickers Digest will have our #1 Aggressive Stock Pick for 2013. It will be released to subscribers this Friday, February 15. Last year’s pick, Alimentation Couche-Tard (Toronto symbol ATD.B) is up almost 75% from the time we selected it, and it is still rising.
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