I love gold. I'm going to just come out and say it now - I expect the price to go much, much higher from here. Gold is great during rough economic times, specifically during periods of civil and social unrest (sound familiar, Wall Street?) as well as during periods of high inflation (which I think we are heading for!).
Although many precious metals gurus such as Mike Maloney prefer the physical metal (think coins) over the stocks (the companies that produce it), I am in heavy favor of the latter. One stock I have no doubt will be a 10-bagger, or rise 1,000 percent in value, is a little company called Sandstorm Gold (Other OTC: SNDXF.PK).
Sandstorm Gold is unlike other gold mining stocks because there are not a miner! They act as a lender FOR the miners. Sandstorm makes up front payments to the miners (say $10 million), for which they receive a portion of the mines gold production at a FIXED COST* (anywhere from 5-25 percent). That is huge, because Sandstorm does not have to pay any costs associated with building the mine! (And there can be, and often are, plenty! They receive the production at a fixed cost, which is great because they will not be impacted by inflation. If oil goes to $200 a barrel (which I expect in a couple of years), that means the cost to produce an ounce for the miners increases. However, it does not for Sandstorm. There margins are safe.
Sandstorm had its' best quarter recently, posting net income of $4+ million and operating cash flows of $8+ million. This is more than enough cash to let them go to the market to make more deals (they have made 7 deals with mines thus far, 3 are active with four to come online within the next 2 years).
I wrote a blog at the Motley Fool last year when the stock was at .60 cents entitled "A Sandstorm is Coming", and the share price has risen to about $1.30 since then. Although it's been a nice run, I fully expect it to continue and haven't even considered selling. My target price for this stock is $6 with a 2015 timeline, but with a higher gold price of say, $5,000 an ounce, the stock could conceivably carry a double-digit share price.
If you'd like more information on Sandstorm, feel free to email me or comment below. I have only stratched the surface in this post!
(Full Disclosure: I own shares of SNDXF.PK)
What are your thoughts on gold? Comment below.