Customer Service 1 (888) 261-2693
Advanced Search

The Commodity Investor Q&A

By Matt Badiali, editor, S&A Resource Report
Wednesday, August 19, 2009

Q: Matt, can you give us an update on Seabridge Gold? – K.K.

 
A: Sure. First, let me give you some history...
 
Seabridge Gold (SA) is a billion-dollar gold explorer that owns two of Canada's largest undeveloped gold projects – Courageous Lake in the Northwest Territories and Kerr-Sulphurets-Mitchell (KSM) in British Columbia. The company holds about 60 million ounces of measured, indicated, and inferred gold resources.
 
Seabridge is the last of the "hoarders," a group that also used to contain Vista Gold, Lumina Copper, and Silver Standard. Hoarding – buying up uneconomic copper, gold, and silver projects – became popular when metal prices bottomed in the 1990s. All these companies had talented geologists who advanced the projects but stopped short of building mines.
 
Once metal prices recovered, Vista and Silver Standard dumped the hoarding model to become miners. Lumina Copper sold off nearly all its projects.
 
But Seabridge CEO Rudi Fronk continued advancing his giant projects and sold off several others to finance the work. The company recently agreed to sell its Red Mountain project to another miner for $12 million. That represents an enormous gain for Seabridge, which acquired the project for about $2.5 million in cash and shares back in 2001.
 
The company used part of that gain to acquire nearly 35 square miles adjacent to its KSM project for about $1 million in cash and 75,000 shares. The land could expand KSM's gold resource, which is already 46 million ounces. It will also add a much needed area for the eventual mine construction, including a tunnel for road access.
 
Right now, KSM's big problem is its upfront cost. It will cost a couple billion to build. However, with gold prices pushing $1,000 per ounce, KSM will be an enormously profitable mine.
 
I last updated you on Seabridge in November. 
 
We were talking about a buyout then, which still hasn't happened. However, the price of gold has risen since then from around $700 per ounce to around $950 per ounce today. That's great news for Seabridge.
 
At $1 billion market cap, Seabridge is still cheap. The Red Mountain project value came to $24 per resource ounce. At that multiple, Seabridge is worth about $1.4 billion – a 40% gain from here. Peers are selling for $26 to $45 per resource ounce... so Seabridge could see even more gains. Seabridge is a great buy right now.
 
Q: I want to buy one of the big gold miners... which one is the best? – A.G.
 
A: The three largest gold miners are Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM). Their second-quarter results just came out, so we can compare their most recent performance.
 
Company
Gold Production (oz)
Average Price
(per oz)
Average Cost
(per oz)
Price (per oz)
Newmont
1.2 million
$915
$423
$404
Barrick
1.9 million
$931
$452
$390
Goldcorp
582,400
$927
$310
$1,100
 
These numbers reflect the companies' performance for April, May, and June. Gold production is the total amount of gold each one produced, average price is the amount each company received for each ounce of gold, and cost is how much each company spent to produce each ounce of gold.
 
The last number on the table is price per ounce. That's the theoretical price you'd pay per ounce of gold produced this year. That number is valuable because it shows what kind of premium/discount each company has in the market.
 
If you're set on owning just one miner, I would focus on production cost and price per ounce. They are the simplest way to gauge a company's value right now.
 
Newmont has been struggling at its flagship mines in Nevada. Costs there are over $500 per ounce. That's tough on profits, but the market doesn't seem to be discounting it much. Goldcorp continues to have the lowest cost per ounce in the industry. It also has a long list of new projects, including its giant Penasquito mine in Mexico. However, you're paying a big premium.
 
Barrick on the other hand, sells at a discount to its peers and pays the highest dividend (1.2% yield). It also has a great portfolio of new projects, but a higher average cost.
 
To summarize, I like Goldcorp and Barrick more than Newmont right now. Goldcorp is the cream of the crop, but you'll pay a higher valuation. Barrick has solid prospects and is cheaper. I encourage you to own a handful of miners however, to spread out your risk.
 
Good investing,
 
Matt Badiali




In The Daily Crux
Market Notes
Building products company James Hardie jumps 23% to hit a new high.
 
Coffee plunges 9% since August 11.
 
Target touches 10-month high... The retailer jumped 8% yesterday after beating expectations.
 
Earnings today... Deere, JDSU, Limited, Yingli Green Energy.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

Recent Articles