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Great Basin Gold - Q2 Results, And Releasing Shareholder Value

|Includes:Great Basin Gold Ltd (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 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.


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