July was an exciting month for gold investors, as the HUI shot from 320 to 370, breaking resistance and appearing set for some serious upside action. But the strength of the 370-ceiling once again turned away gold’s advance, and sent the HUI to 340, where is paused before declining all the way to key support at 300.
Goldbugs were devastated and many pundits, as they always do whenever gold breaks down, began talking about the end of the gold bull. But the 300-floor proved to be even stronger than the 370-ceiling and the HUI promptly bounced back to 330 in just a few weeks time. On Thursday, the HUI advanced back towards 360, and could be set for another attempt at taking out 370.
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Gold futures pierced through the $700 mark on Thursday, hitting a four-month high at $705! Several reasons have been cited including strengthening demand, fund buying, higher oil prices, and forecasts of an interest-rate cut pushing the dollar lower. Another factor pushing up the price of gold and oil were reports of Israel dropping bombs within Syria. Syria accused Israel of bombing its territory on Thursday, and said it could respond to the Jewish state’s “aggression and treachery.” Increasing tension in the Middle East increases interest in gold as a safe-have investment, and could have bene a key factor in Thursday’s surge. However, it appears that a number of fundamental factors are aligning, and providing significant strength in the gold market that could push the metal above its recent high at $720, and towards a new all-time high above $850.
Despite the recent advance, many gold stocks are still on sale, and are significantly lower than their recent highs. At the top of our list is Seabridge Gold (SA) and we have been buying with both hands.
We were admittedly late in discovering and falling in love with Seabridge Gold. The stock was at $3 this time two years ago, and recently hit $30! Not a bad return. Even if you would have got in as late as June of this year, you could have doubled your investment, as the stock climbed from $15 to $30 between June and August of 2007.
We picked up Seabridge on the recent dip to $23, and have enjoyed a 20% gain in under a week. We are adding to our positions at this level, as we believe Seabridge will make new highs above $33 in the coming weeks and continue to outperform other gold miners.
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Seabridge has 100% interests in Courageous Lake project in Northwest Territories, which is believed to be Canada’s largest undeveloped gold project with outstanding exploration potential. It also owns the Kerr-Sulphurets project, and the Red Mountain project in British Columbia, the Grassy Mountain project and the Quartz Mountain project in Oregon, the Hog Ranch project, and the Castle/Black Rock property in Nevada, and the Noche Buena property located in Mexico. In total, it has 10.2 million M&I ounces and another 22 million inferred ounces. It remains fully exposed to the gold price with no hedging, no debt and $30 million cash on hand.
Seabridge has four guiding principles including maximizing gold ownership per common share (minimize dilution by using partners), not operating mines (the extra returns do not justify the extra costs and risks), and only investing in North America (the risks are lower and more measurable).
It also has the following 3-step strategy:
To acquire non-producing uneconomic gold resources.
To upgrade gold resources towards economic status and acquire exploration assets.
To realize gold flows from projects by attracting producers as partners and continuing to upgrade projects and explore.
Their strategy appears to be working and their ability to develop and expand their resources has been impressive. A flurry of press releases over the past year have highlighted their drilling activity and resource expansion. Some might say that the money has already been made, but we think the fun has just begun for Seabridge. The following excerpt is taken from Steve Sjuggerud of Daily Wealth:
The Seabridge story is simple…
At the bottom of the gold market, Seabridge went around buying up properties with known gold reserves that the major gold companies wanted to get rid of.
Seabridge ended up buying over 14 million ounces of gold in the ground, for less than a dollar per ounce of gold acquired. The mining giants Seabridge had bought from had spent a combined $300+ million dollars in studying these properties. But at the bottom of the gold market, these properties seemed worthless. So, the major mining companies dumped the projects for next to nothing.
Now the guys at Seabridge look brilliant…
Seabridge bought nine gold deposits back then. Let’s take a quick look at one now… called Courageous Lake. Seabridge bought it from Newmont (NEM) at the bottom of the market for less than a dollar per ounce of gold in the ground.
Seabridge has tested it further, and now has 9 million resource ounces of gold in the ground there, which are worth close to $6 billion dollars. Yet, the market value of Seabridge is only about $300 million.
An outside consulting firm estimates the cash cost of production to be around $279 per ounce at Courageous Lake. So as long as gold stays up above $600, this project is a no-brainer.
Smartly, Seabridge doesn’t plant to develop the mine itself. It plans to partner with a major mining firm, who will take the financial risk. Seabridge couldn’t identify who that partner is, but it said it has confidentiality agreements with four majors for this project (if I heard them right).
The major mining firms wouldn’t be interested unless this is potentially a major gold mine. And it is… it’s one of the ten largest undeveloped gold deposits in the world. And nicely, it’s in Canada, not some Banana Republic.
Disclosure: The author owns shares of Seabridge Gold, and plans to purchase more. The author was not compensated in any way for publishing this article.