A Gold Mine In a Trash Heap
by Dr. Steve Sjuggerud
September 5 , 2006
“We know we’ve got germaninum and silver in there… and even some gold,” our Australian guide explained.
We were standing over a trash heap… or more specifically, the waste from a metal smelting operation.
“We’re thinking about mining it,” he told us.
The environmental authorities require the smelter to keep this waste on site. Nobody wants it. So it sits in little ponds, full of metal waste, or what they call, “tailings.”
What a turn of events…
Over the last quarter century, mining has been a horrible business to be in. Our Australian guide joked that mining as a business has been, “right up there with the airline business and auto makers.”
Nowadays, after 25 years of poor returns, mining metals looks smart once again. Metals are so valuable, mining companies like this one are thinking about mining their trash…
You know the old saying about one man’s trash? In the mining world it should now be, “One man’s trash is THAT SAME man’s treasure, three years later.”
In the case of this particular smelter, the metal has few replacements. It’s actually in every cell in our body and is essential to forming proteins, the building blocks of life.
Yet the price of this metal in 2002 and 2003 was 35 cents and ounce – below the cost of production. A lot of mines for this metal closed and businesses went bankrupt.
Now, the price is up to $1.50, and with all the mine closures there’s no supply. It’s going to be like this for a few years.
The company I visited is one of the cheapest companies on the planet – trading at a forward P/E of about 3, with no net debt (it has more cash than debt). But you won’t find it on a stock screener. You’ll only find it in the latest issue of Sjuggerud Confidential, which comes out Wednesday evening.
The story here is simple: times are great in the mining business right now – there’s no surer a sign than when it’s worth it to mine your own trash. Yet the prices of boring mining companies are still cheap right now because the world simply doesn’t believe that commodity prices can stay up.
This plays right into one of the core themes we’ve had for years… that commodities would outperform stocks for at least a decade. So far, we’ve been right. And we expect it will continue.
If we’re right, commodity plays like the metals company I just visited can make you triple-digit profits in just a few years. Sjuggerud Confidential readers have seen this trend in action… anyone who took me up on my recommendation of Seabridge Gold is up over 400% in a short period of time.
Commodity producers are making a fortune. But the stocks are still undervalued. Time to take a look at ‘em.
Good investing,
Steve
