In previous reports I assumed Desert Hawk would obtain financing to continue its operations by either issuing debt or equity or a combination thereof. I was therefore very surprised when I read Desert Hawk’s Form8-K filed with the SEC on March 13, 2019. This method of Desert Hawk’s obtaining cash for operations will necessitate my making substantial revisions to previous reports I have issued on Clifton and Desert Hawk, since I did not anticipate an Amended Lease and the cancellation of Clifton’s 5% royalty agreement with Desert Hawk in exchange for $3 million and 5.5 million shares of Desert Hawk’s common stock, valued at $0.40 per share or $2.2 million resulting in a total of $5.2 million in assets being recorded and a corresponding $5.2 million one-time net income pickup for Clifton’s fiscal year 2019. Therefore, I am issuing this update to alert readers of this significant change in my assumptions, and I will follow up in a few weeks with updated reports after I have had the opportunity to discuss this matter with Clifton management. In the interim please use this update in making any decisions you may wish to make regarding Clifton’s stock.
Desert Hawk Financing
Per the Form 8-K filed with the SEC on March 13, 2019 Desert Hawk entered into a Pre-paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings LP (“PDK”). Under the terms of the Purchase Agreement, totaling $21,000,000, PDK has agreed to purchase 73,910 ounces of gold from Desert Hawk in three tranches, with prepayment of the initial tranche in the amount of $11,200,000. There will be two additional trances. I refer you to the Form 8-K for details of this Purchase Agreement.
This transaction gives Desert Hawk adequate cash to immediately, again begin loading the heap leach pad and to significantly expand the heap leach pad, which will significantly increase gold production and Desert Hawk’s revenue and net income. In fact the heap leach pad will probably be increased from its current 20 acres to 80 acres. (See Desert Hawk’s video of its mining operations found on YouTube.) As a result, eventually Desert Hawk will have four times its current gold production capacity. This will greatly increase Desert Hawk’s future revenues and net income with a corresponding increase in the value of Desert Hawk’s common stock.
How this Affects Clifton Mining
In connection with this Pre-paid Forward Gold Purchase Agreement and effective with the Initial Funding, Desert Hawk and Clifton entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of the Amended Lease, Desert Hawk relinquished its leasehold interest in the property known as the Kiewit, which is the principal focus of the Desert Hawk’s mining activities.
Under the terms of the Amended Lease the Desert Hawk acquired and cancelled Clifton’s 5% royalty interest from production on the Kiewit project. As consideration for entering into the Amended Lease, Desert Hawk paid Clifton $3,013,390 and issued to Clifton 5,500,000 shares of its common stock valued at $0.40 per share. As a result of this transaction Clifton will record $3 million of cash and an additional investment in Desert Hawk valued at $2.2 on its balance sheet and will record a one-time income statement pick up of $5.2 million or $0.09 per share for the year ending December 30, 2019. Clifton owned 500,000 shares of Desert Hawk previous to this transaction and will now own 6,000,000 shares, or 20% or more of Desert Hawk shares.
Per a news release issued by Clifton on March 15, 2019, Clifton management stated, “We believe the Amended Agreement provides significant benefits to both Clifton and Desert Hawk shareholders.”
I also believe this Amended Agreement will provide additional benefit to Clifton since the Amended Agreement calls for registration rights for the stock eighteen months after the March 7, 2019 agreement. Desert Hawk’s stock should have a much higher value at that date and trading in the stock will begin. In addition, Clifton received a $5.2 million pick up in income for this year.
The number of ounces of silver and gold deposits on CFTN’s property remains the same as I have previously reported. I may fine tune the amount of silver and slightly increase the estimated ounces of silver from the previously reported 166 million ounces. I will meet with Clifton management and report any additional findings from that meeting. The information in this update is derived solely from a CFTN news release and Desert Hawk’s Form 8-K filed with the SEC.
American Biotech Labs, LLC ("ABL") Dividend
In the news release mentioned above, ABL paid a $.17 per share dividend. This provides Clifton with an addition amount of cash, but more importantly it shows that ABL is doing much better this year than it did last year when it paid a $0.10 per share dividend in the Spring followed by a $0.33 per share dividend in the Fall. Since ABL paid a $0.43 dividend in 2018, it is probable they will pay as much as $0.60, or perhaps even more, during 2019. This, coupled with the $5.2 million income pickup, leads me to conclude Clifton will report at least a $0.12 EPS for its fiscal 2019 year.
For those of you not acquainted with ABL I refer you to their website. They have some very interesting and innovative products and some top notch national customers.
As stated in my previous reports, CFTN remains extremely undervalued at $0.08 per share and needs to be discovered by the investing public, in which case the stock could be valued at a minimum of $1 per share.
This article was written by Stanley Cutler on March 19, 2019. You may contact Mr. Cutler at firstname.lastname@example.org.
The author wrote this article himself, and it expresses his own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
The author has owned CFTN for 12 years. He is currently acquiring shares at these low prices and will probably continue to acquire shares.
Disclosure: I am/we are long CFTN.