Marco G.'s  Instablog

Follow the Flood For Fortune – Great Basin Gold (GBG)

Introduction

Timing is critical for making investment decisions.  Sometimes the timing seems so fortuitous as many factors coalesce into a critical juncture.  Such is the case for emerging gold producer, Great Basin Gold (GBG), to be commencing production during this run up of the precious metals bull market. 

Situation Analysis

GBG undertook a $145 million dollar financing in March 2009, right in the midst of a major dip of confidence in the stock market.  The fact that Great Basin Gold was able to finance during the downturn speaks volumes about the credibility of the company, but never-the-less this financing added 115 million shares that caused an overhang in the stock price.  So the GBG stock price has experienced great volatility this summer and fall, churning up and down without a consistent direction or pattern. 

The stage for GBG has been set as shown in this years chart of their stock price following.

Figure 1:  Chart of GBG.to showing the trading within the symmetrical triangle.  Source:  Cdnbeau posting on TradingChief.com.  “ http://tradingchief.com/stboard.php?page=read&pid=53933 ”

Note the up and down movements in the stock price describing the upper and lower bounds of a symmetrical triangle, heading towards an apex solution in December of this year.  The gyrations certainly looks similar to a coiled spring that is about to be released.  On Tuesday, December 2, 2009, GBG exhibited a breakout of the bounding triangle and shot up for a 7% gain on high supporting volume.  This chart is signaling that an opportunity is available here.

Trend and Timing

Before going further, let us step back and examine some environmental and other timing factors:

1.  Is the general market in an up trend?

Yes, one can say that the general markets are buoyant and are still in a continuing up trend recovery from 2008.  The general markets need to be trending upwards for supporting a movement upwards.

2.  Is the precious metals market in an up trend?

Yes, the precious metals market are certainly bullish.  The price of Gold has recently crossed the $1000 USD barrier and has successively breached $1100 USD and just surmounted $1200 USD on December 1, 2009.  Great Basin Gold is a producer that will announce increases in new Gold production.

3.  Are the seasonal tendencies right for a movement upwards?

Yes, the timing is exactly coincident for the year end pruning and adjustment of institutional portfolios.  Institutions should look favorably upon Great Basin Gold’s prospects  as they add to or increase their portfolio.  The markets are ready for a “Santa Claus” rally. 

4.  Is Great Basin Gold ready for a movement upwards?

For a more detailed answer to this, I refer the reader to my previous report on Great Basin Gold accessible here.  Yes, Great Basin Gold is just turning the corner into becoming a viable mid-tier gold producer.   They are test mining at their Hollister mine in Nevada and are on track to produce 110 k ounces this year.  Their Burnstone mine in the Witwatersrand Basin in South Africa has completed their underground development work and is constucting the surface plant to be ready to commence milling operations in June 2010.

Great Basin Gold is entering production at a confluence of positive trends and timing.

Great Basin Gold Opportunity

Next is how to capitalize upon this perceived opportunity.  The basic play would be to invest in some shares of GBG.  An interesting and possibly more lucrative way to leverage this situation is with tradable warrants for GBG.  They were issued at the same time as the $145 Million financing.  A copy of the TSX bulletin announcing the trading of Great Basin Gold warrants is posted here.  See the table below for the specific warrant details.

Figure 2:  Great Basin Gold Warrant Details.  Note that the life of the warrant expires on October 15, 2010; that is beyond that date, the warrant becomes useless. 

These GBG warrants are especially appealing presently, as they are in the money, the GBG shares being above the $1.60 (Cdn) exercise price.  The GBG.wt.a warrants were bargain priced at 40 cents (Cdn) on December 2, 2009.  As the GBG shares closed at $1.80 on that date, the warrants have an intrinsic value of 20 cents (Cdn) and provide the investor with a 4.5 to 1 leverage.  The writer does not expect this value situation to remain this way for long.

A further attraction of leveraging with GBG warrants is that the company Great Basin Gold is an extremely attractive takeover candidate.  The writer wrote an opinion on GBG being an acquisition candidate posted here.  Using the warrants for leverage gives the investor control of more shares with less initial capital outlay.  This would play to the investor’s advantage should a takeover situation appear.

Warrant Quotation

A delayed quotation for the warrants is available from the TSX site following:

http://cxa.marketwatch.com/tsx/en/market/quote.aspx?symbol=GBG.WT.A&x=7&y=12

Figure 3:  Quotation for GBG.wt.a from TSX site.

Also, a delayed quotation may be obtained from the Advanced Financial Network site as follows:

http://www.advfn.com/p.php?pid=quote&btn=s_ok&symbol=tse%3Agbg%2BA&s_ok=OK

Figure 4:  Quotation for GBG.wt.a from Advanced Financial Network site.

Warrant Trading

Should you be new to warrants, the following are two sites that have warrant information for your perusal. 

1.  http://www.preciousmetalswarrants.com/

This is a site run by Mr. Dudley Pierce Baker that has a free section and a pay section.  There is a useful educational section that describes the various aspects of trading warrants.

2.  http://canadianwarrants.com/values/current.htm

This is a Canadian free site that provides various tables of tradable investment warrants.

The warrants trade in Canada on the TSX exchange.  For American investors, TD Ameritrade is reported to facilitate your trade seamlessly with their counterparts in Canada.  If you use other trading facilities, you may have to trade via telephone.  Do not ask your broker if they can do it, just be assertive and state the Warrant Cusip number along with other details of the warrant that you wish to trade.

Conclusion

To sum this opportunity up, a sage writer once penned many centuries ago:

"There is a tide in the affairs of men, which, taken at the flood, leads on to fortune." - William Shakespeare.”

The timing for Great Basin Gold to be entering serious Gold production seems very fortunate; as all the discussed factors are pointing to a significant upswing in price for the shares of Great Basin Gold.  An appealing way to leverage this situation would be by buying warrants to control more shares of Great Basin Gold in the possible upside coming.

Important Disclosure

The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only.  The author may from time to time have a position in any of the securities mentioned.  There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

The writer elaborated on his thoughts about the trend for Natural Gas in a previous article for Seeking Alpha posted November 23, 2009.  The volume of interest and comments that this article generated surprised the writer.  It appears that natural gas is a very hot topic and that there is no shortage of opinions about which direction natural gas will take from here.  Also the Horizons Beta Pro Nymex Natural Gas Bull ETF (HNU:ca) appears to be a hot search topic on Stockcharts.com as depicted on a snapshot of the search cloud below.

Figure 1:  Search Cloud for Stockcharts on Nov  25.  Interest in HNU ETF was extremely high.

If the market participant was bullish about the natural gas price prospects, the double leveraged HNU ETF would be one of the choices available.

As chance would have it, Tuesday November 24^th, 2009 was a hot day for the markets generally and for natural gas in particular.  See the three charts below depicting the daily, weekly and the point and figure aspects for NYMEX Natural Gas Futures.

Daily View

Figure 2:  Natural Gas Futures at NYMEX.  Note the bottom set on September 4^th, 2009.  A gain of 6% was registered on November 25^th, 2009.

Weekly View

Figure 3:  Natural Gas Futures at NYMEX in a weekly view.

Point & Figure View

Figure 4:  Point and Figure Chart for Natural Gas Futures.  Note the target objective of $11.25.

 Natural Gas gained 6% for the day while the HNU ETF gained a remarkable 15%.  The last chart gives the writer the most telling information.   The algorithms are predicting a target price for Natural Gas of $11.25.  It appears the bottom set in early September is still valid, and until the trend upwards is invalidated sufficiently, the price target is still standing.

What should one make of this?  There are many opinions as to the sagging state of natural gas pricing; the low prices are caused by the surplus supplies, spanking new shale gas finds, the sagging financial systems or a combination of all three.  For the writer, he believes all this information is already priced in, and the market is looking forward, as always.  For all the criticism of the market being irrational, the market is the great dispassionate assembler of all known information and spits it out for a bottom line in the price.  The point and figure chart has already dispassionately spitted out a target price of $11.25.  The writer will stay and enjoy the ride.

Disclosure:  The writer holds a long position in HNU.

Important Disclosure

The information and opinions contained within this document reflect the personal opinions and views of the author and should be view as information for thought and entertainment only.  The author may from time to time have a position in any of the securities mentioned.  Any material within should not be construed as accurate or reliable or be utilized as advice for investment or business purposes. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. There are no guarantees of the accuracy or completeness of the information contained herein.  These writing are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not receive or request compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

This is the second part of a two part article on Gold mining acquisition.  In the first part, we explored some ideas of Gold production and the replacement of reserve ounces that were mined.  For the large capital gold stocks (referred to as “Big Gold”), the most viable route is the acquisition of Gold Juniors to replenish their gold ore reserves.   In this concluding part, we will examine a Great Basin Gold as a prime candidate for acquisition.

Following is a compiled list of Emerging Gold Producers circa 2007, from the Gold Stock Strategist website.  These soon to be producers are the most viable and least risky candidates for Big Gold to acquire. 

Emerging Gold Producers

1. Alexis Minerals Corp. (TSX:AMC; OTC:AMSMF)
2. Anatolia Minerals Development Ltd. (OTC:ALIAF)
3. Apollo Gold Corp. (TSX:ATG: AMEX:AGT)
4. Atna Resources Ltd. (TSX:ATN; OTC:ATNAF)
5. ATW Venture Corp. (TSX:ATW: OTC:ATWVF)
6. Aurelian Resources (TSX:ARU, OTC:AUREF)
7. Aurizon (TSX:ARZ; AMEX:AZK)
8. Axmin Inc. (TSX:AXM; OTC:AXMIF)
9. CGA Mining Ltd. (TSX:CGA; OTC:CGAFF)
10. Crystallex International Corp.(TSX:KRY; AMEX:KRY)
11. Dynasty Metals & Mining Inc. (TSX:DMM; OTC:DMMIF)
12. European Goldfields Ltd.(TSX:EGU)
13. European Minerals, Inc.(TSX:EPM; OTC:EPMCF)
14. Gabriel Resources Ltd. (TSX:GBU; OTC:GBRRF)
15. Jaguar Mining, Inc. (TSX:JAG; NYSE:JAG)
16. Gold Reserve Inc. (TSX:GRZ; AMEX:GRZ)
17. Gold-Ore Resources Ltd. (TSX:GOZ; OTC:GREXF)
18. Gold Resource Corp.(OTC: GORO)
19. Golden Queen Mining Comp. (TSX:GQM; OTC:GQMNF)
20. Great Basin Gold Ltd. (TSX:GBG; AMEX:GBN)
21. Hawthorne Gold (TSX:HGC; OTC:HWTHF)
22. International Minerals Corp. (TSX:IMZ; OTC:IMZLF)
23. Jinshan Gold Mines Inc. (TSX:JIN; OTC:JINFF)
24. Kinbauri Gold (TSX:KNB; OTC:KINBF)
25. Lake Shore Gold Corp. (TSX:LSG; OTC:LSGGF)
26. La Mancha Res. (TSX:LMA; OTC :LACHF)
27. Luna Gold (TSX:LGC : OTC:LGCU)
28. Metanor Res. Inc. (TSX:MTO; OTC:MEAOF)
29. Minco Gold (TSX:MMM: AMEX:MGH)
30. Minefinders Corp. Ltd. (TSX:MFL; AMEX:MFN)
31. Moto Goldmines Ltd. (TSX:MGL; OTC:MTOGF)
32. Nevsun Resources Ltd. (TSX:NSU; AMEX:NSU)
33. New Guinea Gold (TSX: NGG: OTC:NGUGF)
34. NovaGold Resources Inc. (TSX:NG; AMEX:NG)
35. Orezone Resources Inc. (TSX:OZN; AMEX:OZN)
36. Pacific Rim Mining Corp. (TSX:PMU; AMEX:PMU)
37. Petaquilla Minerals Ltd. (TSX:PTQ; OTC:PTQMF)
38. Rusoro Mining Ltd (TSX:RML; OTC:RMLFF)
39. San Gold Resources Corp. (TSX:SGR; OTC:SGRCF)
40. Starcore International (TSX:SAM: OTC:SHVLF))
41. Tara Gold (OTC:TRGD)
42. Timmins Gold Corp. (TSX:TMM; OTC:TMGOF)
43. Western Goldfields (TSX:WGI; AMEX:WGW)

Source: http://www.goldstockstrategist.com/search/label/Emerging%20Gold%20Producer%20List

In the two years since the list was compiled many names on this list have been acquired.  Kinross has purchased Aurelian Resources in summer of 2008.  Kinbauri Gold has been acquired by Orvana Minerals in August 2009.  Anglogold Ashanti and Randgold fought off Redback Mining to takeover Moto Goldmines October 16, 2009.  Lake Shore Gold and West Timmins Mining completed their business combination on November 6, 2009.  The writer considers Great Basin Gold (GBG), #20 on this list as a star candidate that fits a typical takeover profile.

Goldcorp (GG) on November 16, 2009 announced their acquisition of Canplats Resources Corporation (CPQ, trading on the TSX Venture).  Goldcorp will assume ownership of Canplats' Camino Rojo Project, located approximately 30 miles southeast of Goldcorp's  existing Penasquito mine in Mexico.  The deal valued at $227 USD Million will add 1.7 million ounces of reserves to Goldcorp’s resource base.  The calculated value for this transaction is $133 USD per gold ounce of reserve for Canplat’s property. 

Eldorado Gold (EGO) on August 2009 announced a friendly merger with Sino Gold that would create a $6.4 Billion dollar top mid tier gold miner.  The deal values Sino Gold at $1.8 Billion USD.  Sino Gold has their flagship Jinfeng mine and three smaller properties in China.  This transaction is expected to close in December 2009.  The value for this transaction is calculated to be $352 per gold ounce of reserve for Sino Gold’s mines.

Company Make Over

In another life the writer was consulting for a startup telecom technology company.  There was much feverish work in the days prior to a team from Nortel coming to visit.  Extra people such as I were brought in to round out the staffing.  Empty crates were brought into the warehouse and stacked as if production was in high gear.  Telecom test gear was brought in and setup in the labs so as to appear quite busy.  Overall the company was given a quick makeover for the possible suitor.  Eventually the telecom company was purchased by UT-Starcom.

This writer completed a recent report on Great Basin Gold that is posted on Seeking Alpha.  Great Basin has two new mines that are just starting up production.  Hollister in the Carlin Trend in Nevada is a high grade underground epithermal type deposit.  Burnstone is a Kimberley Reef underground mine in the Witwatersrand Basin in South Africa.  Great Basin shares a lot of similar attributes with Sino Gold, which was in the business combination with Eldorado Gold described earlier.  A comparison of some key statistics are in the table following.

Table 2:  Comparison of Great Basin Gold with Sino Gold.  Note the similar production levels and Reserves and Resources.

Great Basin is very similar in size of operations to Sino Gold.  The reserves and resources are similar sized and their projected production levels are closely matched. 

Great Basin Gold (GBG) just completed an offering announced on November 1, 2009, $110 Million convertible debenture.  As Ferdi Dippenaar, President and CEO, stated:  “The sale of convertible debentures is the preferred option with fewer encumbrances on Great Basin Gold's balance sheet, no requirements to hedge gold production and, on a relative basis, comes at a lower cost of capital in a rising gold price environment.”  Reading between the lines, this is code talk for cleaning financial house, in order to provide a neat and clean package for Big Gold’s consideration when they come calling.

The timing is right for Big Gold to bolster their depleting reserves.  World markets are pushing the precious metal prices ever higher.  Big Gold is flush with the high valuation of their stock prices.  Their mined out reserves need to be replaced.  Their own exploration will not be able to replenish the stock of minable ore bodies.  The Big Gold companies are opening their Gold pouches and have their financial minions furiously calculating Gold Junior companies’ valuations.  The bull market for precious metals has created a window of opportunity for astute investors.  There are large and quick gains to be had, if you can find the right companies that are being targeted by Big Gold.

One company that is a target and favored by the writer is Great Basin Gold (GBG).  Goldcorp established a benchmark of $133USD per Gold reserve ounce in their acquisition of Canplats.  This was for Gold reserves on a property that only has a Preliminary Assessment completed for a possible open pit mine.  Great Basin’s 5.3 Million ounces of reserves are in two ready to go mines that has infrastructure built with $334 Million in capital expenditures.  Using the same valuation figure of $133 USD per reserve ounce times 5.3 Million reserve ounces gives $704 Million USD in value.  Adding the $334 Million in mine infrastructure expenditures, the total becomes $1038 Million USD for the valuation of Great Basin.  The current fully diluted shares outstanding is 437 million.  Great Basin’s current stock price is $1.57 giving a market capitalization of $686 Million USD fully diluted.  That means there is a possible 50% upside for Great Basin’s shares in this scenario.

For a second scenario, from Table 1, Great Basin is comparable with Sino Gold in valuation metrics.  Should a business proposal appear, for valuation purposes, one may consider the $1.8 Billion valuation of Sino Gold as being applicable to Great Basin.  If one considers the current debentures increasing the share float to 500 million, then the value per share would work out to be $3.60.  Again there is a significant 100% + upside for Great Basin’s shares in this second scenario.

So Gold Junior, get your financial house in order, the “Gold Sugar Daddy” is coming!

Disclosure:  The writer holds a long position in Great Basin Gold (GBG)

Important Disclosure

The information and opinions contained within this document reflect the personal opinions and views of the author and should be view as information for thought and entertainment only.  The author may from time to time have a position in any of the securities mentioned.  Any material within should not be construed as accurate or reliable or be utilized as advice for investment or business purposes. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. There are no guarantees of the accuracy or completeness of the information contained herein.  These writing are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not receive or request compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.