<GEO: are they going under??? >
First, marcos. Let me get this off my chest: F--------- !!!
I've listened to the conference call twice. You can access it off of the IR on the GEO web site. Listen to it this weekend and give us your impressions? As far as the stock, I've seen virtually all tiny retail non stop for two days but liquidity is solid. I looked over the tape and didn't spot any obvious vulture or raider accumulation (see my Birim posts BTW).
Message 16250977
Message 16251457
I'm sure there will be a bunch more Monday as people look it over the weekend and start calling their brokers early next week. Perhaps late Monday or Tuesday we will see the climax, that will be worth a trade?
My pros and cons:
Pros: Vuelta del Rio is a good asset. There are 410,000 oz in reserves and a high probability resource of another 720,000. Mine life is five years, with a funny cost structure of 200 in first year, then smooth sailing for three years at 140, then 170 in the last year. Life will likely be stretched. So far the head rates are running above feasibility (which now seems conservative). I consider Marathon to be a good asset as well, but for the sake of this discussion let's just value at zip especially given the swoon in PGM's prices. Readers can adjust depending on PGM view. Valuation at 10 cents is US 3.7 market cap.
Con: However we need to add a negative 4.8 million working capital, and 2.2 million in long term debt to give us a total EV of 10.7 million.
Pro: With VR in good working order and even using a distressed appraisal method, what should a 90,000 oz/yr, 5 year plus mine at $160 cash cost be worth? $20 million for the reserves and resources and $10 million for plant seems quite conservative?
Discussion: Is the plant in "good" working order? There is a new crusher that has doubled tonnage, head rates are better than expected, and recoveries are as planned. Mgt. suggests this a "material management problem". They have too much stacked on the leach pad and that impacts efficiency. Odd? Why did they do that? As a result they are losing output time to correct this. Cost from a material point of view to this is nominal, but gold production is impacted. Mgt indicates that the worst has past, and they will be cash flow even by October. They didn't really say if they would be cash flow positive in November and beyond. I assume they will be, as the mining plan can slow down to catch up with the tonnage processing.
The liquidity issue: This is no Greenstone. The cost structure is better and there isn't the kind of financial leverage involved. Nor do the production problems seem that serious. There are US 2.5 million in quick assets in the till. The balance sheet lists the shit pile of gold inventory ready to be leached as 2.8 million (so if they are ready to really get humping shortly that will be quick, no?) The offset are the accounts payable and liabilities that are piling up as a result of this interruption: 7.1 million at 6-30-01 (itching higher no doubt). Will the suppliers work with them? Mgt claims they will. The current portion of the remaining project loan is 3.0 million. Mgt claims the banker has some warrants to exercise in lieu of cash payments. But that statement was made before the stock currency completely evaporated. There are 300K monthly installments due. There is cash on hand to pay the bank through September. Mgt said that July and August were cash drains (wasn't specific, and that's important), and that Sept should be about break even cash wise. Then with the leach pad corrected, October should be back to normal.
My take: Some ifs, buts, and shoulds that need to get handled to keep this from getting out of hand. Is it out of hand this instant? To me no, but a few more errors and "management problems", and it will be. And since capital isn't available to see them through, then it's like having good properties in Monopoly and landing on your opponents three houses on St. James that send you on that beer run for all the other players. I've done a primitive cash flow analysis and see them juggling supplier and bank payments throughout the third and even fourth quarter. They have to generate enough cash to pay things down a few million, and have some change on hand in case somebody doesn't land on their Marvin Gardens hotel the next turn. Didn't these guys ever play that game growing up?
I'd bet GEO survives this, but here we have another tarnished management in a sector that people love to sell out of anyway. I'm calling it the "Dirty Harry" syndrome: "make my day, cause I'm going to f===g pound your stock price." And these guys walked right into it. Most likely in a year this will be a bad dream and the stock will be higher, but I'm attaching the Monopoly game factor on these guys. Frankly even as risk adverse and gutsy as I am, I'm getting tired of this so I'm not sure I'll play this one. I'm starting to get like the old ladies here who just buy the relative safe ones like FGX and MFL. And an analyst like Barry Allan of Research Capital who touted them? He won't be back, damaged goods. |
