Miners Making Money No Matter What the Spot Price of Metal Does

This week we're looking in the metals and mining sector. We've said it before, the spot price of gold has traded sideways for 5 years. So we need to find companies that will be making money no matter what the spot price does. That means going to the source of production. Our three Alpha candidates are all miners doing just that...


This week we’re taking a look at the metals and mining industry. When the market seems to be in disarray, the attention comes back to metals.

We’ve talked about metals before and its clear that trading physical metals is not where the money is. For the past five years the spot price of gold just swings between $1,050 and $1,365. Right now, it’s approaching $1,340 again. Will this be the time it keeps going up?

That might be a gamble worth taking. Or instead, we could look for companies that are going to keep making money no matter where gold (or copper, or lead, or zinc) stay in its sideways trading.

That brings us to our Alpha candidates for the week. We’re looking at the companies that pull metals out of the ground. If the company can establish reliable reserves and pull that metal out of the ground for a cost lower than the metals sideways price, then it’s going to be making money while the market does whatever it’s going to do.

And if metal prices are finally going to break through and see increases…well that’s even better.

First up, we’ve got Seabridge Gold Inc (SA). Seabridge Gold is a Canadian producer of gold, copper and silver. Its principal projects are located in Canada, but it has multiple projects over North America.

With metal producers, its always important to look at the strategy that the management is using. From its inception in 1999, Seabridge’s management has had a strict plan of how to evaluate, acquire, explore and develop gold deposits.

The company never builds or operates mines. Instead it looks to partner or sell assets ready for production. This takes the considerable upfront capital and potential risks out of the equation. While a new project area goes through initial exploration and the mine is built, all that debt is sitting on the balance sheet while nothing is coming in.

The management sticks to a simple three phase process to ensure adding value to its shareholders: acquire known deposits, expand them and define their economic parameters. From this strategy Seabridge has managed the fifth largest gold reserves in the world. And it’s not stopping there…

Last Wednesday the company announced that it had entered into an agreement to acquire 100% interest in the Goldstorm Project in northern Nevada from Mountain View Gold Corp. This property consists of 143 mining claims over 1,160 acres. And it’s only about 3 km to the east of Seabridge’s current Snowstorm Property.

Last week shares opened at $12.17 and closed last week at $12.04. That’s a loss of 1% over the last trading week.

Next up, we’ve got MAG Silver Corp (MAG). MAG Silver is also a Canadian company. But this company focuses on exploration and development with the intention of becoming a top-tier silver mining company.

The company’s principal asset is the Juanicipio mine in Mexico. The development of this mine is now over 19km. The current emphasis is to develop the ramps to access the full length of the Valdecanas Vein system which has reserves of silver, gold, zinc, copper and lead.

Shares opened last week at $10.13 and closed for the week at $10.96. That’s a gain of 8.1% during the trading week. We’ll have to see if shares can keep that momentum this week.

Finally, we’ve got Golden Star Resources Ltd. (GSS). Golden Star is an established West African mining company with a 19-year history of producing gold. The company’s focus is high grade at a low cost.

Golden Star expects to produce at least 220-240,000 ounces of gold in 2019. And it expects to do this at the cost of $620-680 per ounce. This gives the company enough room to make a profit while the spot price of gold continues its fluctuations. And if this is the time that gold breaks through it’s five year high, that’s even better.

The company continues to drill its three mining sites and convert inferred mineral resources to indicated mineral resources. And in February it announced an updated mineral resource estimate that indicated inferred resources had increased 93% since the end of 2017.

Shares opened last week at $3.55 and closed at $3.41. That’s a drop of 3.9%.

Two out of the three candidates saw losses last week. But, this is a whole new week…we’ll be back Wednesday to see what the first half of the week has in store…


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