“Three million ounces of gold buried beneath an Australian peninsula”

By Travis Johnson, Stock Gumshoe, September 24, 2010


I’ve got a couple things to share with you for your Friday File cavalcade of fun today, including the answer to the latest Sovereign Society teaser that I think just started running yesterday — and of course, with gold getting everyone’s attention at these lofty prices, it’s a gold teaser.

So on the topic of gold, I wanted to share with you a couple quick thoughts on some resource investments, including one that I own and one that’s related to one of our “Idea of the Month” stocks.

First, a note on Sandstorm Resources (SSL in Canada, SNDXF on the pink sheets).  I noted a few weeks ago that I added to my position in this “gold streamer” (think a junior Silver Wheaton, only for gold), so it has grown to be one of my bigger speculative holdings — and I was thinking about them this week, with gold soaring, so I thought I’d run down my back-of-the-envelope calculation for their cash flow again.

Sandstorm has four gold streaming agreements with mines that are either already producing gold, or will begin to do so in 2011.  I ran down all of them in my note about buying shares earlier this year, but let me share the quick current rundown of what we’ve been told to expect from each mine. I’m going to assume a gold price of $1,200 an ounce, and that each mine hits their targets for production in 2011, which is probably a bit optimistic on both parts (I’m also ignoring the ongoing startup production this year, which is fairly minor for all of them so far). To keep it simple, I’m also not paying attention to the depletion rate of each mine — all of them are expected to produce for at least eight years, and all have room to significantly increase the size of reserves and the mine life with additional drilling.

Aurizona (owned by Luna Gold): Sandstorm’s deal gets them 17% of production at a cash cost of $400 an ounce. The mine is expected to produce 60,000 ounces in 2011, 80,000 in 2012, and 100,000 per year after that. At $1,200 an ounce for gold, that means Sandstorm effectively gets $800 per ounce, and their share at 17% of production means that they would earn $8.1 million in 2011, $10.1 million in 2012, and $13.6 million annually thereafter.

Santa Elena (owned by ...

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