When any mining stock gets hit with a falling share price while the selling price of the commodity is rising, we need to look for the reason(s).
I believe the reasons for our sell-off are as follows:
1. Barry Cooper's CIBC report on his August visit and the subsequent recent downgrade (which some insiders would know was coming) spooked one or more institutional investors and they decided to bale out, in whole or in part.
2. With the price falling steadily, some retail investors naturally got scared and sold. Heavy stock losses are never pleasant experiences, even without a wife and kids and a mortgage.
3. Compounding the sell-off and increasing the speed of the slide is the unfortunate SGR history of missed estimates, targets and projections along with the usual teething problems of a major mine trying to ramp up production. Investors get edgy, nervous and trigger happy.
And then with the negative analyst report, the share price took another hit when some investors decided to take a second look at the market cap per ounce of proven and probable, measured and indicated reserves and resources and calculated a revised NPV per share, without giving any weight to the “inferred”.
I think that is what’s happening now.
So what to do ? I think the answer is to sit back, put your feet up, take a deep breath, close your eyes and go over in your mind what it is we have in SGR.
Let’s say the overall average grade, over the next 25 years is a modest .333 of an ounce. And 25 years is not a long time for underground gold mines. Bralorne Gold Mines, near Lillooet, BC mined their claims of 9 gpt for 57 years (1914 – 1971) and according to a Mines Ministry geologist who knew the claims like the back of his hand; “they never even scratched the surface.”
If we process 1500 tpd, we would produce 500 oz per day and at an all - in cost per ounce of appx. $600, we would see a net profit with the POG at $1200 of $600 x 500 = $300,000.00 per day.
That is a net profit of about $100 million per year or $3.00 per share with a fully diluted issued share package of 325 million.
So if you believe in SGR, like I do, instead of trying to make some money trading in and out, I think we should all just sit tight and wait for the inevitable………a very profitable gold mine, the shares of which will eventually trade at 20 to 25 times earnings, or $60.00 to $75.00.
And that is why there was a buyer for all 3.7 million shares sold to-day and why there will be a buyer for however many shares are offered for sale to-morrow.
Fred25
