Which Miners Could Benefit from Gold's Bullish Run?

Since last week, gold has dropped significantly from its all-time high of about $1918 per ounce. Despite showing weakness, many investors think that gold just saw a normal pullback and still has a chance to rebound. With the possibility of gold pushing to new highs, some investors may be looking for unique ways to capitalize on it.

Even if gold prices do not sustain the bullish movement seen in the past month or so, gold mining companies have been able to take advantage of high prices. As a result, many companies should have high top-line growth in the upcoming quarter.

Small-cap gold miners tend to experience more volatility than large-cap companies like Barrick Gold ABX. One small-cap company that has been experiencing large price movements is Bullion Monarch Mining BULM. Bullion primarily focuses on gold mining, but is also attempting to expand into natural gas extraction via shale extraction.

Bullion Monarch Mining is not for the average investor. As is implied by its over-the-counter status, the stock is very illiquid. Benzinga contacted the company's investor relations department, and its representative stated that "while Bullion Mining has been actively trying to attain listing on an American exchange, certain factors including a low share price have been holding us back."

The representative also stated that the company has been "actively pursuing TSX venture listing because it is more qualified for that exchange; the TSX is also a good place for mining stocks in general."

Another factor that may be exacerbating the stock's illiquidity is its current holders. According to Thomson-Reuters, an institution has recently purchased a stake of about 1% in the company. According to Bullion's representative, the firm is managed heavily by the Morris family. Morris family members hold positions in Bullion including chairman, CEO, and president. As such, insiders including family members and company executives have large stakes in the company, which total about 20%.

Investors who are able to handle the company's over-the-counter designation may be interested in learning more about its fundamentals. Bullion Monarch Mining's cash position has stayed consistent at about $1 million dollars for the past several years. It does not have many other current assets to its name; however, it does have about $1 million in receivables according to its most recent SEC filing.

What the company does not have in liquid assets it has in more tangible assets. Bullion has been rapidly increasing its property, plant, and equipment over the last three years. In 2009, the firm had about $2 million in PP&E assets, and it currently has about $8 million in assets.

Bullion Monarch has limited current liabilities, which is always positive for a company's operations. However, the company does hold a negative minority interest. Minority interest is a line item that indicates a stake in a subsidiary. Typically, this figure is a positive number. Sometimes, as in the case with Bullion, minority interest can be negative if the subsidiary's equity is so bad that it negatively affects the initial stake. This may or may not have been the best investment for Bullion, but it is possible that management believes that its subsidiary will be improving in the future and will ultimately add value to Bullion's portfolio.

Bullion Monarch's shareholders' equity has been trending positively, with increases in retained earnings and paid-in capital. The company's income statement has been expanding over the years. Its top-line was $6 million in 2011, up from $5 million in 2010. Accordingly, the company's sales, general, and administrative expense increased from $2 million to $3 million. Ultimately, its operating income has increased from $1 million to $3 million. Non-operating expenses did not fluctuate significantly, so the company's net income increased as well, from about $1 million to $2 million. Its EPS increased from $0.02 to $0.05 as well.

The company's cash flows have been fairly stable over the last few years. In its cash flow from operations, the $2 million in net income was offset by the change in net working capital. In 2010, cash flows were saved by adding back non-cash items. As a result, cash flow from operations stayed the same at about $2 million over the last few years.

Interestingly, the company reported minimal capital expenditures on its statement of cash flows, despite having a large increase of property, plant, and equipment on its balance sheet. The company also reported purchases of investments. Cash flows from financing activities were about $0, which is also interesting because the company's paid-in capital increased by a factor of 5 while the stock price did not appreciate as much. The company apparently did not issue any more shares publicly.

Investors may also consider financial metrics when determining Bullion's value. The company looks like it is overvalued based on price/earnings, price/book, and price/sales measures. The company has significantly higher ratios compared to other industry participants. To compensate for high numbers, Bullion has reported much higher revenue and EPS growth than its competitors.

Bullion's margins are also higher, which may mean that it is better at managing expenses than its competitors, which is always a valuable consideration. Its return on equity is also higher than comparable companies' ROE. Lastly, the company is not as highly levered as many other companies, with nearly a 0 debt/equity ratio.

Bullion Monarch Mining is an interesting company that may have benefitted from gold's bullish price movement. Being a small-cap company, Bullion is inherently more volatile than large-cap counterparts and may or may not be an opportunity for investors in this regard. When looking at the fundamentals, however, Bullion may or may not be up to par for some investors' liking. While it has shown growth in some areas, some investors may be looking for more aggressive improvements, as several line items have stayed stagnant over the years. Ultimately, investors have to research the company further before knowing if it is an appropriate investment.

• Gold's price has been very bullish over the last couple months, meaning that miners across the sector will probably have higher than average earnings in the upcoming quarter.

• IntraLinks growth metrics are better than its competitors' metrics, which may mean that its balance sheet could continue to expand organically.

• Since it is a small-cap company, Bullion's stock may move higher than other mining stocks if it beats earnings estimates.

• The company's stock is pretty illiquid, which may be a function of its over-the-counter designation.

• Companies like Barrick Gold are more established and may be better suited for investors.

• Bullion Monarch's stock has been fairly volatile, which may not be appealing to some investors.