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Brazil Resources in known primarily for its gold assets, but it also provides exposure to the uranium market.
In the note, Cantor Fitzgerald analyst Rob Chang points to Brazil’s rapid resource growth over the last two years, noting that the company has added high-value assets to its original portfolio of five projects. In fact, all in all, it has expanded its total resource by nearly 300 percent through a series of acquisitions; currently, it holds a resource of 3.9 million ounces of gold.
Brazil Resources has two primary assets, Cachoeira, which it acquired from Luna Gold (TSX:LGC) in late 2012, and Sao Jorge, which it acquired, along with two other properties, from Brazilian Gold (OTCMKTS:BGOZF). To date, the company has made strides on the Sao Jorge project, having advanced it from an indicated resource of 343,000 ounces in 2010 to the current 666,000 ounces (at a 0.5 g/t cut off), or by 94 percent. Meanwhile, Cachoeira has seen its resource expand from an indicated resource of 446,000 ounces in 2012 to 786,737 ounces in 2013 (at a 0.35 g/t cut off), or by 76 percent.
Chang also notes that Brazil Resources holds a key strategic alliance with Brasilinvest Group, a Brazilian merchant bank. According to Chang, Brazil Resources’ affiliation with Brasilinvest lends it credibility because the bank has a history of promoting Brazilian companies internationally. The company also benefits from Brazilinvest’s political connections and experience in strategic consulting.
But the most interesting feature about Brazil Resources is the gratuitous exposure that shareholders get to the uranium market.
It’s no secret that the uranium market is in the process of heating up, and it just so happens that Brazil Resources holds a 75-percent stake in the Rea uranium project. AREVA (EPA:AREVA) holds the remaining 25 percent of the project, which is located in the Athabasca Basin, uranium’s go-to hotspot.
Rea consists of 12 contiguous permits across 88,464 hectares. Chang describes it as an “impressive sized land package with historic workd competed as compared to other uranium explorers in the area.” The project is over three times the size of Patterson Lake North and, according to Chang, is comparable to “the aggregate 70,892 hectares at Patterson Lake/Patterson Lake South/Clearwater.” Rea is located around AREVA’s Maybelle River deposit, and encompasses extensions of the structure seen in Maybelle as well as parallel structures.
Though Chang’s expectation is that management will eventually “unlock the value of this non-core asset via a spinout or a sale,” the uranium optionality could provide value down the road.
Cantor Fitzgerald currently has a buy rating on Brazil Resources with a one-year target price of $2.70. The company is currently trading around $1.26.
Securities Disclosure: I, Vivien Diniz, hold not investment interest in any of the companies mentioned.
Editorial Disclosure: Brazil Resources is a client of the Investing News Network. This article is not paid-for content.
