Buying those “prospect generators”

By Travis Johnson, Stock Gumshoe, February 20, 2009

Now that my three day waiting period has expired I’ve picked up a few shares of Altius Minerals, which I wrote about in response to a Dan Ferris teaser early this week. This is not necessarily a stock that’s particularly leveraged to gold, though it does have an interest in a promising gold project that’s still in the exploratory drilling stage, but it is a relatively low risk commodity play. They have no debt to speak of, a big net cash position, and a history of making good prospecting calls in Newfoundland and Labrador that has led to one significant royalty position and several other potential income streams from uranium, potash, shale oil (wouldn’t hold my breath on that one) and iron ore.

I also picked up some shares of an investment fund called Sprott Resources — this one was also speculated at as a potential solution to the Ferris teaser, and I did look at it in that regard, but I wasn’t able to confirm that it was a match, partly because it’s not really what you’d call a “prospect generator.” But in doing that research I became convinced that they were another interesting, relatively low risk play on gold and other commodities.

Sprott Resources is a fund that invests in early stage mining projects, broadly speaking, and like Altius they have a big cash position. One of the particularly interesting things about Sprott, given the recent run up in gold prices, is their significant holdings of gold and silver bullion.

Here’s what they said back in mid-December:

“Sprott Resource Corp. (“SRC”) announced today that it has acquired during this quarter 40,475 ounces of gold bullion and 852,478 ounces of silver bullion. The balance of SRC’s working capital is in short-term government of Canada treasury bills.”

Gold was at about $840 an ounce as of December 15, Silver at about $11 an ounce. I don’t know what prices they paid, but the December 15 price is pretty close to the midpoint of the prices that we saw during the fourth quarter, so it’s a reasonable assumption. And they may well have bought more or sold some since then, but if they still hold that bullion and were selling today, that would be $40.3 million in gold and about $12.3 million of Silver. And using that December 15 price, it’s possible that theay’ve made a paper profit of ...

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