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Seabridge: Taking It To The Shorts

Wallace, Idaho " A 15th February hatchet-job by Barron's writer Bill Alpert on Canadian gold explorer Seabridge Gold, (AMEX:SA) entitled “There's (Possibly) Gold In Them Thar Hills,” followed up with similar negative sentiments expressed by Citron Research on 10th March, ran the short interest in Seabridge up to some 8 percent of its market cap.

According to stock watchers, a massive shorting of Seabridge began a few days before Citron came out with its report, and we all know Barron's proclivities when it comes to gold: Barron's loves gold about as much as George H.W. Bush claimed to love broccoli. The estimable Alan Abelson, who otherwise credibly chronicles the demise of the free economy, protests gold with the fanaticism of a PETA rally protesting the cruelty of pouring salt on slugs.

We wonder if this is yet another case of pseudo-journalists and analysts quietly putting out “the word” before they're about to trash or front-run another stock. Having watched such antics frequently on the WWW, even on one heavily-trafficked precious metals site,  we believe anything unethical is possible. Front-runners and bashers are a dime a dozen, but we might have hoped for better from Barron's. Alas, Alpert trashed Seabridge with the vehemence of a Southern Baptist railing against drunks. Citron went a step even further, describing Seabridge as a “mature stock promo, the overt manipulation of public perception to sell shares of dubious value.”

It took Minyanville, a delightfully irreverent financial website featuring the commentary of Hoofy and Boo (Hoofy is the whisky-fired bull and Boo is the pot-smoking bear), to catch the shorts with their shorts down. A Lance Lewis post on Minyanville the day after the Barron's screed appeared set the record straight.

Lewis noted that contrary to the disinformation rendered by the Dow Jones surrogate, insider buying and selling in Seabridge was net long.  Alpert had only reported on insider sales, not insider buying. As Minyanville's Lewis concluded:

“Nobody said this business was easy, but to imply that (Seabridge CEO Rudi) Fronk is some sort of pump-and-dump artist or “Bre-X” promoter is just plain false.”

 “(T)he journalist that wrote this Barron's story was obviously fed a story by an interested party (i.e.  "  somebody that's probably responsible for the recent sharp rise in the short interest) and then failed to do his own homework.
I can’t wait to watch the panic when this large short in the stock inevitably gets squeezed. Just wait until the pre-feasibility on KSM (Seabridge's massive FAT-type gold deposit in British Columbia) comes out in March . . .”

Before we get to the punch line, let us disclose that one of Seabridge's “insiders” is neighbour and friend William M. Calhoun, a Seabridge director and one of those annoying mining engineers. For more than a decade Wild Bill Calhoun steered Day Mines through the chaotic waters of the 1970s and negotiated the successful and very profitable merger of Day Mines with Hecla Mining Company. Calhoun has spent more time in more mining districts than a tyro like Barron's Alpert has lived in years post-breast weaning. And now pushing 80, Calhoun still gets his elk every autumn.

(Question: “Calhoun, where'd you get that fine elk?” Answer: “In the woods, asshole.”)

The Barron's hatchet-job had its desired effect for the shorts, driving SA's stock down from a pre-publication price of $30 down to $21. Citron strove to further drive the nail. 

But a funny thing happened on the way to the market. On 31st March, a pre-feasibility report on the KSM gold property moved 30 million ounces of gold from stated resources into the proven and probable reserve category.

Let us meditate upon the meaning of this, courtesy ounce again of Minyanville's Lance Lewis: 30 million ounces of gold amounts to a third of Newmont's entire gold reserve base, and NEM's reserves are spread out over multiple continents. Seabridge's reserves are all in one place, and in mining-friendly Canada. We interviewed Newmont's boss recently and he told us that they've downgraded their “world-class” expectations from 5 million ounces to a quarter million. And here's an outfit with 30 million ounces? Tell us Seabridge is not going to get taken out. This is one big sumbitch.

There is a larger evil at work here. Dow Jones, through its vassals in the Wall Street Journal and Barron's, despises gold and hard currency. The bashing is incessant, and seems almost conspiratorially  focused on the explorers. Without paper and fiat money circulating through the system to inflate the markets they cover, Dow Jones has no market. They are chasing shadows, and the likes of Alpert are their whores.

And there is a larger lesson. Every explorer (read: junior mining company) starts with a “resource.” It can be a channel sample, or the discovery of an outcrop, or a couple of promising holes. You step-out, you in-fill or, if you are underground, you grind your diamond drills back to carbon, and you guesstimate. Then you roll the big guns in, the geologists and scientists who are Canadian National Instrument 43-101-qualified, or you jump into the U.S. Securities and Exchange Commission's rat's nest, and you convert those resources to reserves. Either way, there's a government gun pointed to your head, and you'd better be honest. A lot's at stake.

What flat pisses us off is that mining “journalists” are not held to the same high standard as the geologists and the mining engineers are. Not that you need to be a chicken to judge an omlette. But should bashing, front-running and the like be a crime? Damn right. This probably explains why more than one noted “mining journalist” moved to the Caymans.

Meantime, take advantage of the greed and stupidity of publications like Barron's. If you can't be with 'em, at least bet against this crock.