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San Gold Cuts Production Guidance

I receive this email today from a member:

Hey Don,

San Gold cut their forecast for 2013 to 85k-95k ounces, and it doesn't seem like they can really expand their reserves like everybody hoped. do you still like them?

My reply

Here is the link:

Here is a paragraph from the release on 2/8/2013:

The Company is providing preliminary guidance of between 85,000 to 95,000 ounces of gold with cash costs of under $800 an ounce for 2013; 95,000 to 105,000 ounces of gold for 2014 and 105,000 to 115,000 ounces of gold for 2015.

My Comments:

I have them rated as a 3, so it is not a big upside stock. But I think they are a safe bet for a 5 bagger and a possible 10 bagger – if they can increase production.

They have costs contained and a good management team.

They have a large property (100,000 acres) and I think they will be able to expand their resources and reserves. I’m just hoping for 125,000 in sustainable production.

They have 3.5 million in resources, so they likely can increase production. So, yes I like it. I especially like the location.

One last point. They are selling at 4x cash flow, that isn’t cheap but isn’t expensive either. Their cash flow will increase with higher gold prices (lowering their multiple). And I would not be surprised to see them trade at 15x cash flow if we get a mining stock mania.

A 10 bagger might not be achievable, but I’ll be surprised if they are not a 5 bagger. I like to have a few of these low risk stocks in my portfolio. You are not going to get rich, but they provide stability for downturns.

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