Wraithlok (65.66)

My Case for Seabridge Gold (SA)

February 06, 2009 – Comments (1) | RELATED TICKERS: SA

I have put together several long winded "comments" on the stock itself, but feel that I should combine them in my blog for an easier read.   

In short;  SA in my opinion will be one of the biggest stock gainers in the gold sector in the next few years.   Here is why:

 SA is not a mining company, they are a claim rights company.  As such investors are buying in their ability to obtain undeveloped claims at a cheap price and then selling them off at a higher price after the Preliminary feasability study is done.   As such buyers of gold mines want to see three things namely a low cost to mine, a high gold content, and a gold market value that makes it worth while.

Gold Value:   Because of the danger of inflation within the next few years a lot of people are going to be turning to gold for a safehaven (right or not).  This will of course raise the gold value in the market place and make undeveloped claims like KSM more attractive.

Cost to Mine:  KSM will be an open pit mine, which is a decent way to extract the gold but requires a lot of diesel fuel and thus oil prices greatly affect the cost to extract.   Oil right now is at all time lows which greatly reduces the cost of the operating machinery; this by the way is not reflected in the most recent "preliminary cost assessment" done by SA.  If and when they update it we should see their allready low cost to mine fall even farther.    Additionally the proximity of the KSM claim to a major maintained highway (huge plus in Northern Canada!) means that they will not be having to rely on dirt roads which could hamper effectiveness in year around operations.   KSM is ALSO located near a hydro electric plant which will provide an extremely cheap source of electric power for operations at the plant... another incredible bonus.

Gold Content of Mine: KSM was originally explored by Placer Dome in the 90's and thought to have approx 3.4 Millon ounces of gold.   SA entered negotiations in 2000 and bought the claim out and now has 100% rights to it (this was at a time of a depressed gold level in the market place < in 2000 gold traded at a median of 279 per ounce which was extremely low) and SA walked away with the rights based on 3.4 million ounces for a song.   

So it looks like they timed their 3.4 Million ounce claim right market place wise... but what Placer Dome did not do was a more thorough analysis of the region.   Oops.   Based on updated preliminary assessments and studies the KSM mine (again not SA's only claim but their major one) is in the top 3 of undeveloped gold mines in the world.  Current estimates show not the 3.4 Mil previously thought, but something in the range of 13 Mil gold and 2.2 Billion ounces of copper.  

This is absoulutely astonishing for a company that only has 38.7 Million shares out and a leverage value of gold per share of 1.3 (over 2x the next competitors).   This is based on PRELIMINARY evidence which means that there is some risk here at the numbers coming in lower... but also coming in higher.   Even if their figures are off by 50% their leverage value will come in right at the competitions level.   

 Combine this with the recent news that SA has just sold a claim called Noche Buena in December shows that Seabridge knows how to close the deal.   This is extremely important for investors as it shows that indeed their claims can be sold and their profit realized.

Based off of these numbers it is no wonder why the most recent stock analysis done by Dahlman (http://www.seabridgegold.net/Dahlman-Feb3-09.pdf) Pegs the stock at a buy and a target price of 65$.    I personally would be quite happy with half that, but i'll take 65$ too.

RISKS:  

Again this was based on preliminary assessments of the mine.   Additionally the buyer marketplace for large scale mine operations is relatively small... so if the price of gold goes down then it will be hard for SA to unload this mine.   As always invest with your own risk; and read up the reports yourself! :) 

Conclusion:

 In conclusion I think that the value of gold will go up, the analysis of KSM will live up to it's expectations (-/+ 15%) and that long term this stock will be a seriously good investment. The timing of KSM being bought on the dip in the gold price in 2000, coupled with the discovery of more than 4 times the gold previously thought in 1990, and the future for the increase in the gold price I think that this stock is posed to sky rocket.  

  I do indeed own shares of the stock (bought at 10) and plan on doubling my stake at some point based on new evidence.   

Other sources:

Seabridge Site: http://www.seabridgegold.net

Another Analysis:  http://www.seabridgegold.net/FraserMackenzie-Apr29-08.pdf  

Happy Investing!