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rod100

rod100
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  • Paladin Energy Increasingly Leveraged To A Uranium Price Recovery [View article]
    Agreed. It all depends on refinancing of the convertible. I'm holding (a painful position so far), but not adding. Potential 1000% upside, but very high risk until re-financing sorted.
    Aug 6 12:51 AM | Likes Like |Link to Comment
  • Uranium Is Cheap But Uranium Participation Corp. Is Not [View article]
    Agreed. Incredibly frustrating. Cameco is uninteresting (in my view) due to the massive potential tax liability, juniors uninteresting as they risk not surviving the downturn (I've taken a lot of pain in Paladin - arguably not a junior - but still hold it - however it remains risky until they find a way to re-finance the large convertible debt issue that is maturing next year). As far as I am aware there are no futures traded on Uranium. That leaves URPTF. Like you I can abide a premium and would be willing to pay a 5-10% premium to NAV to own the shares (justified by lower risk Uranium exposure, and also arguably by the NAV pricing off spot rather than contract prices) - but I cannot bring myself to pay current premium to NAV. On the flip side, assuming Uranium spot gets back to $75 in 3-4 years time (and the shares then trade at NAV), you still have the potential to double your money in URPTF over that time frame. But I still can't bring myself to pay the current premium to NAV. You would think some of the large ETF managers would recognise this opportunity, and bring their own physical Uranium product to market.
    Aug 4 09:09 PM | Likes Like |Link to Comment
  • Uranium Demand Uncertain: Is Cameco Corp. The Right Long-Term Play? [View article]
    Have just finished listening to the Paladin conference call (I'm long - so far painfully!). Their analysis for the mid term supply demand fundamentals remains bullish, and they claim their analysis - although constructed independently - comes up with similar expectations to Cameco's analysis. Their assumption includes several Japanese reactors coming back on line in the next twelve months, and ultimately 50% of Japanese reactors coming back on line (although they believe the actual number will be more like 75% coming back on line).

    Interestingly, despite the last two years seeing a revenue per pound getting closer to spot rates, Paladin are suggesting that most of their 2014-2015 production has been pre-sold at prices well above spot (in fact they are suggesting above $45 / lb) In theory, combined with cash cost reductions, mothballing of their second largest mine and re-financing of a portion of their debt, this suggests the cash out flow at Paladin is finished.

    Although they are not out of the woods yet with a large convertible (at the holders option) bond to re-finance in 2015, obviously leaving a risk of further substantial dilution unless financing options (i.e. profitability outlook and visibility - read improving Uranium spot and contract prices) improve.
    May 16 03:34 AM | Likes Like |Link to Comment
  • Veris Gold Drama Is Only Good For Those With Money [View article]
    The problem is the uber leverage to the gold price. At current gold price and expected production, 3rd party processing revenues and cost efficiency, they probably need around $50mn to get through the negative cash flow cycle induced by the Deutsche facility repayment schedule. At current market cap, plus value of cash requirement ($50mn) you would still have a stock trading on around 2x earnings in a years time (at current gold prices). I would subscribe to that rights issue like a shot. BUT if gold price falls to $1000, then the financing requirement will double, the profitability (once Deutsche repaid), will be 75% lower, the $100mn plus current market cap would not look like good value. I'm not saying gold is going to $1000/oz. Just saying it is this leverage to the gold price that will make financing (whether by debt or equity) more difficult. Note that if they sold the business for $200mn (well below the replacement value of the processing facility) you would potentially receive triple the current share price. I wonder if management are considering this option, and whether they could find a trade buyer in this environment - even at such an enormous discount?
    Nov 28 04:29 AM | Likes Like |Link to Comment
  • Pershing Gold's Low-Cost, Low-Risk Project In Mining Friendly Nevada Is A Winner [View article]
    A quick follow on from my own previous reply. To correct my own semantics. Where I've said "marginal" costs you should read "cash" costs. Obviously the marginal cost (or the cost of producing an additional oz of gold at an existing mine) will be a lot lower than what I have suggested - and I am not suggesting (touch wood!) that gold would get remotely close to that level (70-80% fixed costs in gold mining I think).

    "Gold prices will go up, but many existing and prospective gold companies won't be around to benefit. Pershing will be there, unless it gets acquired"

    Looking at your comment that I've quoted above, we are singing from the same hymn sheet regarding the effect of current (or lower) gold prices on many miners.
    Jul 2 09:46 PM | 1 Like Like |Link to Comment
  • Pershing Gold's Low-Cost, Low-Risk Project In Mining Friendly Nevada Is A Winner [View article]
    "What is the marginal cost of production? Probably higher than the current price."

    The marginal cost is cash cost of gold mining and processing. The full cost includes depreciation on assets, costs to maintain reserves (exploration and new mine extension/development, and financing costs). A company will rapidly go bankrupt if it is selling its product at less than the marginal cost of production, but can carry on existing for quite some time (particularly if its balance sheet is reasonably healthy in the first place), if it is covering its marginal costs of production.

    For the industry I guess the marginal cost of production is probably going to be the average or possibly median marginal cost supplier. In this scenario those with a marginal cost below the industry marginal cost survive but make little or no profit (or could well be making net losses), those with a cost base above the median or average marginal cost go bankrupt.

    I am not an expert in Gold production costs (and I'm sure there are plenty of others on SA who can give a reasonable estimate), but at $1200 I believe it is highly likely that gold is trading below the current full cost base, but is still well above marginal cost. From the few gold companies that I have looked at I'd guestimate the marginal industry cost is probably somewhere between $800 and $1000. Obviously it gets lower with a stronger $.

    Please note that this is not something that I have done a lot of work on nor am I intending to. However, if I was going to take a big position in gold miners at these levels it is something I would definitely want to have some understanding of. I'm not saying Gold would fall to these levels permanently, nor am I saying they will. I'm saying they could,and if they do there will be bankruptcies before things get better.
    Jul 2 09:10 PM | 1 Like Like |Link to Comment
  • Pershing Gold's Low-Cost, Low-Risk Project In Mining Friendly Nevada Is A Winner [View article]
    You may want to look at Veris Gold - which is already producing, and is trading on very low multiples of book value and future earnings even assuming a $1200 gold price, particularly when their forward gold supply agreement with Deutsche Bank comes to completion (or if it is negotiated for a longer repayment period which has been suggested may happen by management). Veris Gold also has processing facilities that in the past have been estimated to have a replacement cost of $1bn. The company's current market capitalisation is around $40mn. The company has little in the way of debt excluding the pre-payments they received from Deutsche Bank for future gold deliveries (which by the way artificially decreases their reported earnings as, what is essentially debt repayments are treated as a revenue deductionin the accounts, without deducting the cost of producing the gold).

    It is also worth looking at the (sad) investor history of Veris Gold to see how long and expensive the process of returning a previously producing mine back to production can actually be. The Veris Gold investors' journey has been incredibly painful despite the company improving financing, improving production and lowering operating costs. I personally have a long position in Veris Gold, but am currently hedging the position via a gold short. I believe with Gold price in a down trend you should expect the market to price in $1,000 gold for calculating miners profits, and when you take into account full costs (not just direct cash costs), that means no profit for most gold miners. Obviously if gold recovers and finds stability the gold miners should rally. But it would be dangerous to rule out the possibility that gold could trade at the marginal cost of production (it certainly has done in the past for protracted periods of time).

    I know this is not directly related to Pershing, which is a company I haven't looked at, but I do think it may be relevant as a comparative valuation for anyone looking at junior or pre-production gold miners.
    Jul 2 12:08 AM | 1 Like Like |Link to Comment
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