The Investment U E-Letter: Issue # 472
Tuesday, September 27, 2005 Seabridge Gold.,.. and How to Buy Gold for Less Than $10 An Ounce
By Dr. Steve Sjuggerud, Chairman, Investment U
Rick Rule is a present-day legend in the eyes of investors who want to learn about how to buy gold and investing in natural resources. Rick spoke at a private conference I hosted on investing in gold recently. Our big question to Rick was, "how do you make money buying gold stocks?" Rick said the best way now is through "the hoarders." "Everyone thinks you've got to build a mine. But that's not how to buy gold for a profit… What you want to do is buy the gold in the ground, and let someone else spend the hundred-million-plus dollars to mine it." Next up on the podium was Seabridge Gold (AMEX: SA) - a hoarder, like Rick was talking about… One of Seabridge's "guiding principles," according to its presentation, was its commitment to NOT operate mines. Instead, it owns the gold in the ground, and it attracts major mining firms to do joint ventures. With its shares valued at less than $10 per ounce of gold it owns in the ground, Seabridge may be your best buy among the gold hoarders. Let me explain… Seabridge Gold: Up 70%… And Still Cheap I recommended shares of Seabridge to readers of my newsletter when the stock was trading around $2.65. Today (helped by the recent bull run in gold), the shares are around $4.50, a 70% rise. Even after that rise, shares of Seabridge Gold are still attractive, for a few reasons… First, you get a huge pile of gold for next to nothing in price. The stock market value of Seabridge at current prices is less than $150 million, and the company has about 16.6 million ounces of gold in the ground. You don't have to be a math whiz to see you're paying less than $10 per ounce of gold in the ground, making it what I think is the cheapest safe gold stock in the world. Second, all of Seabridge's gold is safely located in North America. We're not talking Russia, Indonesia, Venezuela, or any other crazy place where we're concerned about expropriation or property rights. We don't have to worry about some government taking a mine away as soon as it's profitable. Third, Seabridge has very little downside. It acquired 100% interests in eight properties when gold was below $300, for less than $1 an ounce in the ground. Of course, at $300 gold, these properties were not economically viable. Today, with gold at more than $450 an ounce, these properties become much more interesting to major gold producers. In case gold crashes, it's not a problem. Seabridge said its holding cost for these properties is less than $1 million per year. Said another way, its holding cost is $0.08 cents per ounce of gold in the ground. And Seabridge is debt-free. How to Buy Gold: An Option on Gold - That Never Expires Seabridge shares could continue to do well. The company got lucky, in a way… When gold was below $300, Seabridge went rummaging through the trash, and bought properties that major mining companies had spent more than $300 million dollars on, and then scrapped. Now, with gold over $450, those "trash" properties are valuable assets. If Rick Rule is correct on how to buy gold, and holding hoarders is the way to go, then debt-free Seabridge - with all of its properties in North America, and selling for less than $10 per ounce of gold in the ground - sure is worth considering. The stock is going to be more volatile than almost any stock you've ever seen. But I think of it like an option on gold that will never expire - it's backed by the gold in the ground. That means it could tank quickly by 50%, just as easily as it could double. But if you're interested in buying gold, you might want to check it out… We've got it in my recommended list as a buy. And after hearing Rick Rule and Seabridge talk at my private gold meeting, I like it even more. Good investing, Steve P.S. For more on this precious metal, read our updated gold forecast: 6 ways to tap into the "second leg" of mega profits… Related Articles: Investment U Archives
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