One of Casey's top picks this month.

BUY (Under C$0.72)—Bayfield hit more high-grade gold in the high-grade zone it is drilling off on its Burns Block project, just east of its property line with Rainy River (V.RR) in Ontario. It’s too early to say how big this zone will get, and it has not yet grown very large – but it’s there. It’s hard to imagine anyone building a giant open pit mine at Rainy River and leave a nice sweet spot like this just beyond the pit wall. Based on this alone, we do think a takeover is a very likely endgame here, whether or not it’s imminent.

That takeover potential limits the downside in the play, a good thing, but it’s not the only source of potential upside. The mineralization continues open to the east, and drills are turning. No, Bayfield has not found another high-grade shoot, but that doesn’t mean there isn’t one there. The company is more than half-way into a very substantial, 50,000-meter drill program, with assays pending.

What are the odds of another spectacular high-grade discovery, such as the one that sent the stock soaring just after we recommended it last September? Hard to say, but with the downside limited by the takeover potential, we get to place that bet almost for free.

Which is not to say the stock is cheap, for what the company can say it has in the ground – which is nothing 43-101-compliant, so far. What we are saying is that we see more upside than downside, and an easy double this year, or better, if the drilling is successful.

If we did not own any shares, we’d buy a small first tranche now, and maybe another tranche if the shares drop below 72 cents again. And we’d buy bigger blocks in the 50-cent range if given a chance to do so with no company-specific bad news.