Claude Resources: Turnaround is fair play

Gold stocks have been the darlings of the investing world, and for good reason: favorable macroeconomic circumstances have conspired to lift the Philadelphia Gold/Silver Index (XAU) 30% higher in the past year and 300% higher in the past six. Gold stocks, it's fair to say, are in the midst of a secular bull run.

But not every gold issue has a run with the bulls. One notable laggard is Claude Resources Inc. (AMEX: CGR), a Saskatchewan-based gold producer. Claude earns a living from its primary revenue-generating asset, the 100%-owned Seabee gold mine in northern Saskatchewan. The company also owns the Madsen Project, a development gold mine in Red Lake, Ontario, along with lesser oil and natural gas assets in Alberta.  

Claude's stock and trade is gold production, and in this milieu it has disappointed. In 2005, the company expanded mill capacity at the Seabee mine to double production to 75,000 to 100,000 ounces per year. To date, the Seabee mine has fallen far short of expectations: gold production for all of 2007 totaled just 44,322 ounces.

Lackluster financial performance has further exasperated investors. For the nine months ended Sept. 30, 2007, Claude posted revenue of $25.6 million compared to $31.9 million in the year-ago period. The 20% revenue drop produced a $5.2 million loss, which was distributed to shareholders at $0.06 share, compared to a $6.8 million profit, or EPS of $0.09, in 2006. For all of 2007, revenue is expected to post at $31.7 million, resulting in a full-year loss of $0.09 per share.   

The revenue shortfall is the result of a prolonged poor showing at the Seabee mine, where revenue dropped 24% to $18.9 million at Sept. 20, 2007 from $25 million in 2006. The decrease was a result of lower gold sales volume (26,000 ounces in 2007; 36,700 ounces in 2006) offset by a 7% improvement in dollar gold prices realized ($657 in 2007; $600 in 2006). Management attributed lower volume to equipment availability and lower-grade ore.

More recent numbers, though, suggest Claude is beginning to extract itself from its self-imposed pit. In September, the company updated its proven and probable gold reserves at the Seabee mine. Updated mineral reserves now total 984,200 tons and should produce 211,100 gold ounces, a 42% and 44% increase, respectively.

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