<What's with GBU?>
Majors are still at the paper shuffling stage. I'm hoping once these big mergers are done, then 2002 becomes the year of property consolidation, and that has to mean juniors like GBU.
In the meantime I think GBU has been tarnished with this second scaled down feasibility study that signals they are going to try and bring Rosia Montana along themselves. Secondly, the majors are apparently going to make GBU take care of the $20 million village relocation, not a minor expense even for a junior with a little more muscle than most. That's not the ideal situation, which I believe is a sale to a major for about $350 million ($C 6.50).
This typical "tooth fairy" comment on exploration acquisition targets from Goldfields illustrates the quandary:
goldfields.co.za
Note their criteria:
minimum of 2 million ounces:
Rosia Montana has 11.3 million Au eq.
production rate greater than 200,000:
in the "big scale" study, Rosa Montana will produce 750,000
cash cost half of commodity price (i.e 138 at 275 POG):
Rosa Montana is 101
payback in two years:
Rosia Montana is 2.6 years
double digit rate of return:
RM is 30%
BUT HERE's THE RUB: Goldfields also needs to BUY THE DEPOSIT, and that pulls their fantasy transaction apart. All in cost for this project would be in the neighborhood of $190, not the total $158 cost the IRR and payback is based upon. Indeed unless Goldfields can go out and find such a deposit on it's own for a few bucks an ounce, they (and others of their ilk) will never develop a gold mine again using this formula and 275 POG.
Here's the good news. Majors like Goldfields have overpriced stock (see my SA comments this weekend) that they can use as currency, and if they plan on still being in business at the end of this decade use it they must. Don't have time here to work back through the numbers, but bottom line is that a case could be made whereby Goldfields could trade (*) all "inflated" stock for Rosia Montana. It wouldn't met their absurd tooth fairy parameters, but it would still be a sound business proposition.
I'd be a buyer of GBU at this mid-2 level.
(*) Watch my buddy Pierre Lassonde employ this strategy throughout the property sector (will not be in the low cost mid tiers, overpriced so wouldn't work) along with the NDY hedge book uncork. He will likely beat the rest out of the gate. |
