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Silverado Gold a profitable low-priced
play
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all the recent excitement over the remarkable performance
of gold and silver mining shares, Canada's best-kept mining
play has been quietly undergoing accumulation in preparation
for what promises to be an extraordinary rise in share price
later in the year. The company in question, Silverado Gold
Mines Ltd. (Symbol: SLGLF), has been around for over 30 years,
is completely restructured, un-hedged, and prepared for the
next leg-up in gold prices.
To provide some idea of just how
much upside potential Silverado has, the stock traded at its
all-time high of $11 on the Nasdaq in the 1980's when the
price of gold was less then $800/oz. At its current price
of $0.25, Silverado is the investment opportunity of a lifetime
in view of gold's developing long-term bull market. Far-sighted
investors who can accumulate Silverado shares at current low
prices will be amply rewarded for their timing and discernment.
Fundamentally, Silverado has a
number of positive factors in its favor. For one, it possesses
fully-owned claims on five large properties in Alaska. It
is close to the Kinross Gold Ft. Knox mine with a 6 million-ounce
reserve. Also in Silverado's favor is the fact that it is
near the completion of a US$4 million financing project to
bring their largest mine into profitable production this summer
at $100/oz. cash cost. It has similar costs to Canadian mining
companies trading on the NYSE such as Goldcorp (GG) and Meridian
(MDG).
Silverado has a 440,914 oz. reserve, with the expectation
of over 2 million ounces upon further exploration. Moreover,
its conservative 3-year profit target has been put at US$19.5
million net on the first 70,000 ounces, with a profitable
first full year production of US$5.1 million un-hedged.
Equally important for the active
gold stock trader is the fact that Silverado is no slow-moving,
illiquid equity. It is a high-volume mover with over 85 million
shares traded since January 2002, with 72 million shares outstanding.
Silverado thrives on its promise to its shareholders to continually
look for gold-dominant projects that increase shareholder
leverage to gold.
What really impresses us about
Silverado's internal state is its management. We've heard
nothing but good things from colleagues whose business it
is to know the gold mining industry. Silverado's President
and CEO Garry Anselmo makes it his business to do everything
he can to increase shareholder value and by all accounts is
extremely accessible, unlike most CEOs. He also has an uncommon
grasp on the fundamental condition of not only the gold market
and gold mining industry but also of general economic conditions.
Silverado's Anselmo said it best
when he recently observed, "It is payback time for the record
federal, corporate and private debts. Low interest real estate,
private credit and interest free purchases held the economy
over in 2001/2002, now the wildcards are used up. PE ratios
on the S&Pand Nasdaq are still more than double the 50-year
average, so at best the market will stay in a range for a
few years, if not decline. Greenspan and Wall Street promised
investors a return on their money and if they don't see some
hefty returns by this fall, should head into gold because
many precious metal funds have already advanced over 30% the
last 12 months. The present momentum will feed on itself.
Major mining companies such as Barrick and Anglo are cutting
back hedges, expecting further upside. The market capitalization
of all gold stocks is only about US$90 billion or 1/3 the
size of Microsoft. It would not take much demand for shares
to witness a sustainable increase in the price of gold stocks."
Silverado (SLGLF) was heavily accumulated by
insiders between February and May, this much is evident from
the record of the tape. It is also plainly visible in the
daily chart, which shows a shallow head and shoulders pattern
with low volume on the dips in this timeframe between February-May.
The preliminary breakout from this pattern came at the beginning
of June and the rise was sudden, swift and meteoric. Silverado
leaped from its 4-month average price of $0.15 to nearly $0.30
in a two-day period. This sharp run-up in share price caused
an immediate reaction and a consolidation has developed in
the market for Silverado shares since then. After a brief
re-test of the early June high, Silverado will likely continue
to trade range-bound for the next few weeks before breaking
out with the gold stock group later in the summer when the
dominant equity cycles peak and gold gets going to the upside
with greater force heading into the fall season. Until the
next sustained rally in gold shares, Silverado should be gradually
accumulated above $0.20 in advance of the anticipated breakout.
Once Silverado crosses $0.30 it isn't likely to stop until
it reaches its next price equilibrium objective of $0.60.
Clif Droke
http://www.clifdroke.com
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Clif Droke-
is the editor of the weekly Bear Market Report, a combined
forecast and analysis of U.S. stocks and indices and international
precious metals stocks, and is the author of numerous
books on trading and technical analysis (most recently
Gann Simplified, published by Traders Library).
For a FREE COPY of the Bear Market Report
send e-mail to: cdroke9819@aol.com
or write:
The Bear Market Report, Clif Droke, P.O. Box 3401,
Topsail Beach, N.C. 28445-9831.
or visit his website
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