While GLD, the SPDR Gold Trust, has followed the gold price higher over the past year, it has underperformed the shares of many gold mining stocks - including San Gold (SGR.TSXV). While Gold ETFs such as GLD have posted impressive gains, their returns have not kept pace with shares of San Gold and other mid-cap gold stocks. Today’s news out of San Gold illustrates why this company, in addition to providing investors with leverage to the gold price, has outperformed not only gold bullion ETFs such as GLD, but all of the broad-based gold stock ETFs such as the Market vector s Gold Mining ETF (GDX).
During the past 52 weeks, GLD has gained 30% while shares of San Gold have risen 184%. The catalysts for San Gold’s significant outperformance include not only the gold price leverage it offers but the company’s continued high-grade gold discoveries near its mining infrastructure. As the price of gold has advanced to new record highs, demand for gold companies that control high-grade gold deposits has increased substantially. This demand has stemmed from not only investors, but also from large gold mining companies seeking to strengthen their future production profile by acquiring smaller competitors that control high-grade gold deposits - which are generally the most profitable mines.
The most recent contributor to San Gold’s outperformance of gold ETFs such as the GLD was the gold mining company’s announcement of further high-grade gold intersections stemming from drilling at its Rice Lake Gold Project in Canada. San Gold reported that underground exploration drilling has discovered multiple new high grade zones running parallel and to the south-east and to the footwall side of the “ 98 ” vein above the 28th mining level.
A highlight of the results occurred at drill hole #28-09-21, which cut 37 grams per ton of gold over 12.2 meters, thereby extending high-grade gold mineralization substantially to the east, into areas of Rice Lake that have yet to be explored or developed. Moreover, the Canadian gold producer announced that this intersection consisted of an “extremely high grade” segment of 122 grams per ton of gold over 3.6 meters and contained coarse visible gold. This development with respect to the “ 98 ” vein above the 28th level has produced the highest grading chip sampled face to date at 909 grams per ton of gold over 3 meters.
San Gold has spent the past two years improving access and infrastructure to the “ 98 ” vein area as the gold producer prepares it for mining and exploration activities. The company stated that this area is expected to comprise 30% of 2010 gold production and has already contributed to a higher grade of 0.30 ounces per ton in December 2009. The company noted that several drill holes near the “ 98 ” vein are currently being deepened since the number and extent of new footwall zones is larger than anticipated.
Dale Ginn, CEO of the Canadian gold mining producer, commented that “San Gold management have long understood that developing higher grade areas of the Rice Lake mine in an upward and outward direction, rather than solely downward, are key to improved economics within this mine. This effort is now resulting in new high grade discoveries in open extensions to the host Rice Lake mine unit, as well as providing deep platforms for exploration well below the newer near surface Hinge, 007, L13 and Cohiba zones that are located in the hanging volcanic rock units. Our ability to chase these new deposits to depth is greatly enhanced by these developments. Our efforts will continue in an upward direction in order to improve ounces per vertical meter and to above 26 level where the use of our internal D winze (shaft) is not required, resulting in greater ore handling efficiencies.”
Mr. Ginn and the exploration team at San Gold have continued to deliver for shareholders, generating numerous new high-grade gold discoveries through their geological interpretation of the Rice Lake district. Shares of San Gold have risen 215% since the beginning of 2009 as numerous instances of high-grade gold have been discovered within the confines of the existing infrastructure at Rice Lake. The Canadian gold producer’s high-grade gold vein discoveries have drawn comparisons to that of Goldcorp’s Red Lake of a decade ago. San Gold has been drilling and defining this new gold district and continues to boost its standing in the gold mining sector. Mr. Ginn and his team have developed a proven track record of finding high-grade gold within a prospective land package that still offers significant blue-sky potential.
While GLD will appreciate if the gold bull market continues in 2010, shares of gold companies such as San Gold - while containing higher risk - offer returns that may far exceed the appreciation of gold ETFs such as the GLD.
