San Gold needs to break to profit

Nov 13th, 2009 – 1 Comment

There has been a number of developments at San Gold, most recently the signing of a letter of intent to acquire properties in Timmins from Laurion Mineral Corp for a million shares and $1M in cash.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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SanGoldLogo-smHi Lou
After listening to many financial opinions supporting San Gold and doing my own research, I purchased some shares. Price has dropped from my purchase price and remains stagnant.

For some time now, I have observed advertisements (paid for by SGR) in claiming to be next big gold producer.

This concept makes me leery and cough up my morning coffee every time I see the ad. I emailed SGR (I’m wondering – holding back disastrous news) but have not received acknowledgment. Can you share your expert thoughts?

Thanks – and cheers!

John

Hi John,

I know what its like holding shares that are under water and it will get your nerves on edge. You have taken the first step in resolving this internal conflict by seeking a second opinion. The next thing to do under these circumstances is evaluate the second opinion and then undertake a review of the investment and see if your original findings that motivated the purchase are still valid.

There has been a number of developments at San Gold Resources Corp ( SGR TSX) most recently the signing of a letter of intent to acquire properties in Timmins from Laurion Mineral Corp (LME TSXV) for a million shares and $1M in cash. The other developments all center on the Rice Lake Mine in Manitoba where SGR is working to develop sufficient resources in proximity to their existing operation so that they can operate their facilities profitably.sgr

However none of these advancements would be considered a company maker or breaker. The three year chart provides a good view of how SGR has progressed and you would have to agree its had a great ride off the bottom.

Which leads me to assume that you might have bought your shares since August. The reason I say that is I looked at charts going back seven years and the current price range is the highest level since 2002.sgr2

The three month chart provides a better view of the recent action on the stock and yes there has been a leveling off. There is resistance at $3.20 and support at $2.50. The MACD generated a signal of the drop and pop in October. Currently the stock is holding onto support on its 50 day moving average.

What will drive SGR back onto an uptrend are results from its operations at Rice Lake. They have two operating mines and a third in the planning stage. What they need is enough tonnage to drive the mill at capacity and generate profits instead of losses.

The other factor in play is the ongoing exploration on their holdings around Rice Lake. SGR is drilling up targets in search of the sufficient volume to make the big turn from producer to profitable producer.

When I look at SGR I see a management team that has moved the stock higher over the last seven years through a focused effort that has maintained their objective of building a profitable operation. Management holds 15% of the stock, with institutions controlling 55% .

The company has $31M in cash and no debt. Yes they have to raise money to finance their activities but that’s to be expected at this stage in their development.

Yes there is risk in the story. They might not find the required volume at Rice Lake but when you invest in a development play you have to accept that as part of the environment.  For my money I think you need to decide if you want the exposure. SGR might not fit your investor profile and as I have said many times if you are getting antsy put the cash in your pantsy!

Happy Capitalism!

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