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Value

The gold miners are cheap after investors fled the sector thinking the gold bull was over. Aurizon Mines Ltd. (AZK) is expected to grow earnings by 87% in 2012 after posting triple digit earnings growth in 2011. Yet this Zacks #1 Rank (Strong Buy) has a forward P/E of just 9.5.

Aurizon is a Vancouver-based gold producer with 11 properties in the Abitibi region of northwestern Quebec including Casa Berardi, which is operational, and the Joanna property which is in the feasibility stage. It has a market cap of $865 million.

Record Revenue in the Third Quarter

On Nov 10, Aurizon reported its third quarter results and had a record quarter due to high gold prices. Revenue was a record $68 million (all dollar amounts are in the Canadian dollar, except for the price of gold, where indicated).

The quarter was boosted by Casa Berardi which saw revenue jump 71% to $68.1 million from $39.9 million a year ago.

It sold 40,257 ounces of gold compared to just 30,755 ounces of gold in the third quarter of 2010.

Higher Gold Prices = Operating Margins up 233%

Aurizon is completely unhedged so it was able to cash in on record high gold prices. The average realized gold price was US$1,695 per ounce compared to US$1,119 per ounce a year ago.

The company also was able to make 100% of gold sales at current market prices. In the year ago quarter, 60% of gold sales were delivered against gold call options at an average price of US$915 per ounce.

Earnings per share missed on the Zacks Consensus, however, by 4 cents as analysts got too bullish. Earnings per share were 8 cents compared to the consensus of 12 cents.

This was still 467% higher than the third quarter of 2010 when the company made just 1 cent.

Exploration costs jumped 29% in the third quarter to $7 million from $5.5 million in 2010 due to further exploration and feasibility work at the Joanna property.

Cash is King

Aurizon has plenty of cash, which is a good problem to have for a smaller miner. As of Sep 30, 2011, cash and cash equivalents rose to $178 million from $139.3 million at the end of December 2010.

The company also has an untapped US$50 million revolving credit facility, which was established on Jan 31, 2011.

Zacks Consensus Estimates Rise

In November, the company confirmed its production guidance for its premier property, Casa Berardi, at 165,000 ounces.

The analysts liked what they heard and are still bullish on 2011 and 2012.

2 estimates have moved higher for 2011 in the last 30 days. The 2011 Zacks Consensus Estimate has moved to 30 cents from 29 cents in that time.

That is earnings growth of 397% as the company made just 6 cents in all of 2010.

But the analysts also see more hot times in 2012.

2 estimates also moved higher for 2012 in the last month, pushing the 2012 Zacks Consensus up to 56 cents from 51 cents.

That is another 87% earnings growth.

There's Still Value

Shares sold off for much of 2011 after peaking in late 2010.

But with earnings expected to grow, that means there is a lot of value.

With a forward P/E of just 9.5, that puts Aurizon well under its peers at 10.3x. It also has a price-to-book of 2.8. A P/B under 3.0 usually indicates value.

Additionally, Aurizon has a 1-year return on equity (ROE) of 10.9%. That is better than its peers who average just 8.4%.

The gold miners aren't dead yet. Gold is still 18.8% above year ago levels. We'll find out on Feb 10, when Aurizon is scheduled to report fourth quarter results, whether the 2012 growth story is here to stay.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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