Why does SNN offer such dramatic upside?

1: Big Leverage. If your company (SNN) is sitting on 12 million ounces of gold equivalent, each $1.00 increase in the price of gold adds $12 million to the company's underlying asset value. So today bullion rises more than $80. In one day Gold surged the most in nine years as investors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. Silver soared the most since 1979. Do the math. Our value went up by a billion dollars and the share price is 26 cents? Is something wrong here?

2. Limited Supply of Stock. The market capitalization of even one of the 30 companies in the Dow Jones Industrial Average is larger than that of the entire junior gold exploration sector! That means gold stocks tend to be very thinly traded as we are witnessing at the moment. So much so that when only a few investors are paying attention to gold and junior exploration companies, the shares of these companies can sell for the price of a bottle of beer. But later, when the investment masses begin clamoring for gold stocks, it's like a stampede from the Wild West.....sending the shares to the moon and literally making fortunes for early investors.

It’s also worth pointing out that of the roughly 104 million shares in the company outstanding, fully 75 million are held by Kings Minerals NL, a publicly trading entity controlled by the same people (Norm Seckold, Dudley Leitch, etc.) behind Palmarejo Silver & Gold. These people are considered miners in for the long haul, and don’t sell stock. Insiders and institutional investors control about another 23 million shares. This leaves only 6 million shares or so in the free trading public float. So, despite the large number of shares outstanding, they are tightly held. In this day and age, where so few large new deposits are left to maintain the production levels for the senior producers, this project is going to have a very high priority for development. A strong partner, plenty of cash in the treasury, ongoing aggressive exploration work, and a steady stream of news flow in the months ahead, should all serve to ensure that the risk profile for San Anton is much lower than for other late stage exploration companies.

3. Three or four years ago before the base metals bulls started getting exciting, it used to bother me that a major copper producer (that is also a major gold producer) was "tainting" the purity of the gold-stock indexes. No more. Today's emerging gold-mining method of choice is digging big open pits to process low-grade ore. It is usually much cheaper than digging shaft mines, and much easier to find low-grade deposits than the rare high-grade ones. Virtually all the time in these types of open-pit deposits, byproduct metals exist. Thus most gold miners in the world today have byproduct metals that they mine in conjunction with their gold at most of their operating mines. Pulling other metals along with gold is part of the game now. SNN has over a billion pounds of copper. These byproduct metals, thanks to raging bull markets driven by insatiable Asian demand, can greatly contribute to overall gold-mining profits Byproduct revenue is wonderful and it should be embraced, not scorned. I consider any byproduct revenue to be a big plus when I pick stocks to buy. It enables companies to develop lower-grade gold deposits that would not be economical at today's gold prices without their byproduct revenue. That is a good reason to be very bullish on SNN and the potential this investment has to patient investors. The vast progress made in gold-stock valuations over the past year is incredibly encouraging regardless of its causes. It confirms and verifies the once-controversial thesis that guided the earliest investors in this bull market six years ago. We were willing to buy gold stocks at ridiculous valuations back then not because they were fundamental bargains at the time, but because they would turn out to be fundamental bargains as the gold bull marched higher. There is no disputing this now. And I think this trend is even more relevant today than it was six years ago. The higher the gold price goes, and it is very likely to continue much higher due to its stellar fundamentals, the greater the profits for the gold miners will grow. And as they've done in the past six years, overall these profits will probably multiply faster than stock prices due to the tremendous profits leverage inherent in this business. This means that not only are gold stocks highly likely to continue appreciating on balance, but they will get cheaper and cheaper like the oil and base-metals stocks. These lower valuations are crucial in a bull market as they open the door for much broader investor participation. Early on, only brave or foolish contrarians buy in. They believe in a secular bull before anyone can see it and they bear huge risks. Since the contrarian pool of capital is so small in the grand scheme of things, they can only drive up a sector so far. Eventually value investors realize the early contrarians were right, and they notice that the sector's P/E ratios are favorably low. So they start to buy into the attractively-valued stocks and drive them much higher than the contrarians could have alone. Then ultimately the mainstream investors follow the early contrarians and later value investors in. The mainstreamers collectively control gargantuan amounts of capital that can drive a sector stratospheric, but they won't buy in until late in the game when momentum compels them to. Without the value investors buying in first, which wouldn't happen without low valuations, the momentum necessary to seduce in the mainstreamers near the end of the bull would never exist in the first place. So if the gold stocks' lower-valuation trend continues in the coming year, they will become even cheaper relative to the general stock markets. These low valuations will attract in new investors and a much larger pool of value capital than the contrarians could ever hope to control. If this scenario plays out as it ought to, obviously now is a great time to buy while general sentiment remains so irrationally pessimistic. As usual the psychological wall of worries is drowning out these truly important fundamental developments, but sentiment can't trump fundamentals for long. Sooner or later traders will realize $850 gold is very profitable for miners and they will rush in to buy. Profits are always the ultimate long-term driver of stock prices.

The news is starting to flow. We now have pre-feasibility. 2009 will bring a bankable study and capital expenditure for the mine in Mexico.