The Source is back and has sent us this update:
Ding Dong!!! This is the wake-up call for followers of KGFC and for new comers to the Insider
Report.
There has not been significant development to report until now. Recent news releases indicate
positive developments to the dispute regarding ownership transfer of the 3 mines to KGFC. Share
volume picket up as the news starts to filter out.
For details on the issues leading to the $28.6 million dispute between KGFC and the Government
of Kazakstan, may I suggest to the new followers of the Insider Report to read recent company
news releases. They are informative and provide sufficient details to understand the issues. As
some of you already know, at times one needs to read between the lines to get a better
understanding on developments. I believe the market has not picked up on the "between the
lines" message in recent news releases. I'll try to do this for you in this posting.
For more information on what KGFC is about you can check the website
kazgoldfields.com. Please note that recent news release have not been updated on the
web but can be found in Stockhouse.
Let me quote from the January 21,1998 news release, "Company Chairman A. Thomas Griffis
stated, although we are seeking a court resolution to this dispute with the Government, we will
continue to attempt to resolve this matter outside the courts. However, to date the Government
has shown little interest in settling this matter on a commercial basis''.
Here is the most recent news release dated March 11, 1998, "KGFC is pleased to announce that it
has accepted an offer from the Government of Kazakstan to commence a dialogue with the intent
of reaching a settlement to its dispute with the Government of Kazakstan. ...open discussion with
the purpose of reaching a negotiated settlement of our dispute". In accepting this offer, KGFC has
agreed to temporarily suspend its US$28.6 million claim against the Government of Kazakstan
which was filed in the International Court of Justice in The Hague Netherlands on November 17th,
1997."
So much for the official statements. Let's get to the "between the lines" developments. KGFC
accepted an offer from the Government of Kazakstan. The reason the government is now coming
forward to deal with this matter is because they are losing money "big time" with production
costs of $300/oz. To be profitable the mines need an investment of $15 million to build a
carbon-in-pulp ("CIP") facility and upgrade the electric power plant which supplies power to the
mines. This will bring production cost down to $215/oz. The mines are the only economic activity
in a town of several thousand people. The locals are leaning on government official to get
investment flowing to deal with high unemployment. The government is not able to fund the
required investment and no outside company would touch this while there is a legal dispute. Just
look at the mess Placer Dome is in with Crystallex. So now the government blinked and they are
seeking "settlement."
So you read the word "settlement" and the first
thing that comes to mind is KGFC will get $0.10 on
the dollar. For better optics, make it $ US! Let me
turn your head 180 degrees so you can think in a
different direction. To put this legal claim in
prospective, $28.6 million is $0.80 per share and
current share price is $0.10 a share. The current
settlement discussion is centered around the
complete takeover of the mines, as per the original
agreement. There is no cash offer on the table by
the Government to buy its way out of the $28.6
legal action. There is a third party negotiating on
behalf KGFC, who is prepared to put up $12 million
for the CIP. KGFC is required to put up $3 million
elecric power upgrade. This third party participant
will give the government a face saving way out of
this dispute. This is not a done deal yet, however,
the government would not OFFER to settle this
out of court unless most issues have already been
discussed and agreed on in an unofficial way. This
dispute is like two kids fighting and you need a
third person to make them shake hands and move
on. No one wants to look like they blinked first. Ask yourself this question. Why have a third
party involved with available cash to invest if the OFFER to settle was about KGFC taking a cash
settlement? KGFC will remain an active participant in digging the gold out of the mines.
Now, if you said show me the evidence, then I'll say, read between the lines of the February 27,
1998 news release which for some reason was not picked up by Stockhouse, but can be found in
CCN. "The company has repriced all of its 10,769,231 warrants outstanding, reducing the exercise
price to $0.25. A further 1,600,000 warrants that may be issued as part of units issuable upon the
exercise of outstanding warrants have been repriced to $0.30 per share." This would raise over $3
million. Why would the company reprice it now if they where not close to settlement? Also the $3
million expected from this issue just happened to be the amount KGFC needs to upgrade the
electric power plant. It seems that the company expects share value to exceed $0.30 once
settlement is announced. Another question, why $0.30 which is well below market value once
settlement is announced if there was not a prearranged taker by a Fund to subscribe to the entire
issue? A settlement would generate a value of at least $0.30 plus, otherwise the Fund would not
take the warrants. All the ingredients are in place to settle this in the near future. It's a question of
time. The Source. I'll be back!!! |
