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Tony S
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Tony S is an individual investor interested in the economy, and markets in general. Previously, I've been an electrical engineer and worked the electronics industry for 20 years. Interests include the stock market, precious metals, real estate, and currencies.
  • Great Basin Gold - Q2 Results, And Releasing Shareholder Value 16 comments
    Aug 14, 2012 10:48 PM | about stocks: GBG

    Q2 - 2012 Earnings

    Financial Statements and Management's Discussion and Analysis can be found at the SEC website here.

    Earnings Per Share : -0.04/share

    This is disappointing to say the least. Not much more to be said here.

    Burnstone

    Burnstone is still having problems. There was a "delay in the completion of the vertical shaft and the associated permanent infrastructure". These "delays in completion of the associated shaft infrastructure impacted on service water supply, handling of excess water and the cleaning of spillage in the vertical shaft bottom which negatively impacted shaft availability. Water is required to clean, support and drill and the time lost in replacing burst plastic pipes from the temporary infrastructure and de-water the affected area severely impacted production goals."

    The issue with the delay in the completion of the shaft and subsequent water issues were KNOWN to Management at the time of the June AGM. As far as I know, it was NOT MENTIONED. As a shareholder, I'm find this to be unconscionable. They should have talked about this during the AGM on June 6.

    Consequences : Strategic Review Process

    The Board of Directors are not amused. According to the MDA, they have "recently initiated a review process to consider a range of strategic alternatives with a view to preserving and enhancing shareholder value". Also, "Strategic alternatives are likely to include, but are not limited to, the sale of all or a portion of the Company's assets, a merger or other business combination transaction".

    In addition, it appears that "Ferdi Dippenaar has resigned with immediate effect and Mr Lou van Vuuren is the new CEO." I view this development as a significant positive for the company.

    The Board has basically now put EVERYTHING on the table, in order to release shareholder value. The company's market cap is now currently SIGNIFICANTLY below enterprise value.

    Going Forward

    I am very encouraged with the actions of the board. In particular, their "view to preserving and enhancing shareholder value". The company is currently selling at below enterprise value. Burnstone itself, in its current unfinished state could be worth $2/share.

    One solution for the board is to sell Burnstone itself, take the cash, and distribute most of the proceeds to shareholders in the form of a special dividend. This would release a large amount of shareholder value. Given that the dividend itself could be 4 times the price of the stock, it's possible that we could see the stock price rise substantially at that point.

    As a side note, there are about 6 million shares short (as of July 31, 2012), so these shorts would see that dividend as a severe liability (4x or more greater than any possible gain they might have from shorting the stock). This would result in a short squeeze, and further propel the price forward.

    Conclusion

    At this point, there are no more excuses, and I believe the board will do what needs to be done. As the stock is trading at below enterprise value, it still represents extreme value. The most that a current short seller could get is $0.45/share. If the board decides to sell Burnstone, and institute a dividend wit the proceeds, that means that shorts would have a liability of about $2/share. Things have just become very interesting.

    Disclosure: I am long GBG.

    Stocks: GBG
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Comments (16)
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  • stocks13
    , contributor
    Comments (8) | Send Message
     
    hi tony and thx ... per this in mda ~ "In addition to the in-house valuation performed on the Nevada project, the Company recently received non-binding third party proposals to purchase the Hollister assets for amounts supporting the carrying value of these assets" ... any comments ? and what would carrying value be for hollister ?

     

    thx again
    14 Aug 2012, 11:37 PM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » Thanks for the input, if I recall correctly, in January, I believe that Hollister alone was worth (at least) $1/share (given resources, and production rates). It should still be worth that much.

     

    If anyone else is reading, and has any better ideas what Hollister is worth, please feel free to chime in.

     

    Thanks, Tony
    15 Aug 2012, 12:16 AM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » re: "are we looking at stupidity or simply asset problems? Are Burnstone and Hollister simply mines from hell?...or was the Turd and his gang simply incompetent? "

     

    I believe we are looking either inexperienced, or poorly experienced, management. Most projects have unexpected delays. Good/experienced management knows this, and they will factor these unexpected delays into the schedule ahead of time. Good management also put in contingency plans (if there are problems) and adds redundancy and backups into the plan. Finally, good, responsible management communicates these issues and solutions as soon as possible to shareholders to avoid shareholder surprise.
    Unfortunately, I believe that Ferdi's gang are not very good at up-front communications, or contingency plans.
    Hollister is outstanding - it has the highest grade ore that is currently being mined in the world today (at 23 grams/ton).

     

    Burnstone is/was significantly more difficult to get going than Hollister, but it has significantly more production capability (at 200K oz / year when operating at full production), and there has been considerable work put into it already (both in terms of development access as well as equipment). Naturally, this will need to be factored into the cost of the sale. The Witwatersrand Basin is world famous for the quality and quantity of gold mined there.

     

    re: "And if the sale of either could and would happen, how long do you think it would take?"I think a sale could happen quickly - possibly within 1 quarter's time-frame - (that's usually about the time it takes to get the deal squared away and for the buyer to arrange any financing).
    15 Aug 2012, 02:09 AM Reply Like
  • stocks13
    , contributor
    Comments (8) | Send Message
     
    one more detail on my mind tony ... what happens to the warrant holders in these two possible scenarios ? do you have a best strategy ?

     

    ps: good luck with your questions on conference call ... i have to say i sent an email to company demanding action on sale of one entity immediately
    15 Aug 2012, 08:59 AM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » been a tough day.

     

    Warrant holders - these are essentially options, or side bets. As such, there is no dividend associated with them. Warrants are only valuable when the share price is above the strike price.
    15 Aug 2012, 08:20 PM Reply Like
  • jt
    , contributor
    Comments (156) | Send Message
     
    "i have to say i sent an email to company demanding action on sale of one entity immediately"

     

    stocks13...I sent several emails over the past two years stating in no uncertain terms that they needed to concentrate on ONE property and either sell or JV the other, and in view of Tranter, I rec'd selling Burnstone. Never received ONE reply, despite being a shareholder for MANY years. In the last one I sent earlier this year, I called for Ferdi's head if he couldn't figure out how to turn it around right...and essentially immediately...as it was obvious we were heading for a cliff.

     

    Congrats to mgmt and to the BOD for waiting until we're on the brink of disaster to actually do what they should have done a long time ago. A real pisser...jt
    15 Aug 2012, 10:00 AM Reply Like
  • gianakt
    , contributor
    Comment (1) | Send Message
     
    Market maker telling me stock is way oversold and thinks it will get back up to .50 to .60 within a month, lets see if he is right.
    15 Aug 2012, 02:52 PM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » We'll see what happens. It appears that the Board is starting to act. Doubtless they can prognosticate as well as I can.

     

    I feel that any company considering buying assets from one company, will always consider buying the entire company and splitting it up, and that the board and management should be aware of how public actions can boost share prices (to make a slice and dice action less likely).

     

    Selling an asset yourself and distributing proceeds to shareholders is very different from having the company bought, and sliced up. The difference, is that management and the board have some control over what takes place. Otherwise, there can be feeding frenzy as sharks circle the prey.
    15 Aug 2012, 08:28 PM Reply Like
  • stocks13
    , contributor
    Comments (8) | Send Message
     
    http://bit.ly/Q2KxX7
    16 Aug 2012, 08:32 AM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » Thanks for the link.

     

    The chart at the end of the article brings back perspective. It's from the life-cycle of a junior miner, and it explains why GBG is where it is today. I had forgotten about this standard life cycle. Thanks.
    16 Aug 2012, 08:36 PM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » CORRECTION : "The company's market cap is now currently SIGNIFICANTLY below enterprise value." should read "The company's market cap is now currently SIGNIFICANTLY below equity value."

     

    Equity = All Assets (cash, plant, property, equipment) - All Liabilities (ie: debts, etc.)

     

    This figure can be found on the company's balance sheets.

     

    I was thinking at that time of company purchase and breakup value, and miswrote enterprise for equity. Enterprise is the UP FRONT COST to breakup the company, where-as EQUITY value is what you would make if you did break up the company.
    16 Aug 2012, 07:40 PM Reply Like
  • stocks13
    , contributor
    Comments (8) | Send Message
     
    just a thought as money is needed in short term ... what about a JV with a big company neighbour to share the costs of burnstone

     

    also when time is right spin off Nevada hollister mine as gbg.b

     

    anyway just sayn ( and prayn ) thoughts ?
    17 Aug 2012, 12:32 AM Reply Like
  • Stock Jackal
    , contributor
    Comments (545) | Send Message
     
    My biggest concern is their cash position... what a shame, why can't they sell a royalty stream to Royal Gold or something for the USA mine?

     

    Tempting to by more shares are this price.... but what happens why they run out of cash and debt starts to trigger.... seems quite risky.,... to put more in...
    17 Aug 2012, 09:34 PM Reply Like
  • Tony S
    , contributor
    Comments (17) | Send Message
     
    Author’s reply » I was also recently thinking that they could do some kind of gold streaming agreement with Sandstorm Gold or Franco-Nevada (i.e.: stream part of their Burnstone output which according to management should reach 200K oz / year by 2014, (90K / yr in 2013, and 30K in 2012).

     

    I have not done much research on Royal Gold, but I am guessing that they have a similar business model to Sandstorm (up front capital in return for a gold stream).

     

    I was planning on writing an article / email to GBG / open letter to GBG management about a streaming deal. In addition, I thought I would send an email to Sandstorm management as they were looking to add a gold stream, and a mine which could bring in 200K oz Au in 2014 might be very interesting to them.

     

    Tony
    19 Aug 2012, 06:12 PM Reply Like
  • stocks13
    , contributor
    Comments (8) | Send Message
     
    good point ... I remember thinking earlier if they had enough silver as biproduct that a deal with silver wheaten would be possible to cover costs ... here's a link about them and how a streamer works http://bit.ly/NVwa7I
    20 Aug 2012, 01:29 AM Reply Like
  • stocks13
    , contributor
    Comments (8) | Send Message
     
     
    per streaming
       
    BAY STREET-Royalty firms could spur junior miner deal bonanza
    * Cash-rich royalty companies poised to strike new deals

     

    http://reut.rs/OQMsUn?aid=...
    20 Aug 2012, 10:48 AM Reply Like
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