GPXM - President's letter to Shareholders
Golden Phoenix Minerals Issues President's Letter to Shareholders
Friday April 11, 5:00 am ET
SPARKS, Nev., April 11 /PRNewswire-FirstCall/ -- Golden Phoenix Minerals, Inc. (OTC Bulletin Board: GPXM - News) today issued the following letter to shareholders, posting it on its website: golden-phoenix.com. It follows in its entirety.
Dear Fellow Shareholders:
We are often asked about the growing dichotomy between the Company's rising success, truly a monumental accomplishment, and its falling share price. I am doubly aware of this: I left the ranks of outside shareholders to join the fight to restore, rebuild and revitalize Golden Phoenix and I am a shareholder.
Our share price is especially disappointing considering our accomplishments over the last 40 months. Your Company has:
-- Retired the majority of the Company's debt
-- Concluded its five pending lawsuits with significantly favorable
settlements
-- Permitted, built and put into operation the Ashdown mine, which
generated more than $10 million in sales from molybdenum in 2007.
-- Expanded all affiliated operations from 6 employees to 75
-- Upgraded all accounting and audit functions to meet the increasingly
stringent Sarbanes-Oxley requirements
-- Created a Technical Services Group
-- Launched a state-of-art exploration and drilling division.
We are taking the steps necessary to reverse the trend and bring the value of the shares in line with the value of the Company. A list of possible reasons for the decrease in the share price and, more importantly, what we are doing to reverse this, follows:
1. Unrealistic expectations
When we first began development of Ashdown, we believed we could get
it up and running in less than a year, thinking that the existing
access only needed limited rehabilitation or could be rapidly
circumvented. We were wrong. The work to restore the portal and main
drift to a safe and useful degree was complex and demanding, the
ground was dangerous, and it took an extra year to solve it. This, in
turn, placed heavy burdens on company finances. We set time
expectations we were not able to meet. Nonetheless, we did complete
the task and our assessment of the ore body has been confirmed as to
both size and grade by our recent NI 43-101 study, and we are
preparing exploratory drilling during the next few months in an effort
to further expand the resources.
2. The language we use in our financial statements
For a number of years, we have been required to post warning language
in our financial reports that addresses the question of "going
concern." Up until now, this language has not improved even though
our financial position has. It is up to the auditors to make any
changes. We understand that in order to remove this language, Golden
Phoenix needs to establish a track record of sustained profitability.
That is expected to happen as Ashdown completes its development work,
continues to increase its output and establishes sufficient reserves
to allow for distributions to its owners. This is the track that
General Manager Kent Aveson is on, and we have a high degree of
confidence in his ability to perform.
3. The arbitration that never seems to end
The Ashdown Operating Agreement, which governs the relationship
between Golden Phoenix and its joint partner, provides for binding
arbitration when there is a partnership dispute. This is intended to
mitigate legal battles and provide timely and amicable resolutions of
honest disagreements in order to keep the business moving forward.
The disappointment is that arbitration has now entered its 16th month.
However, the arbitrator is guiding the process and setting timetables
for the submittal of any remaining documentation, and we are confident
that a firm and final resolution will be reached reasonably soon.
4. Share dilution
At the time that management arrived in 2005, the Company had
approximately 148 million shares outstanding. Since then, that has
increased to about 185 million issued shares, not including warrants
and options. As both a major shareholder and a manager, I do not like
seeing this number rise. But as an officer charged with the task of
performing work, I recognize that the only reason for Golden Phoenix
to operate as a public, rather than private, enterprise is to have
access to capital through the use of shares. It is unfortunate that
heavy dilution had already occurred before the change in management
in 2005. But the shares we have since added funded vital,
value-building work, including the earn-in at Ashdown, purchase of the
Northern Champion mine in Canada and the acquisition of a drilling
division. And we are not done with this work. We are currently
preparing a feasibility study intended to restore significant ore
reserves to our Mineral Ridge mine, and have mapped out a two-year
drilling program to add even more. We are convinced this is the
proper application of share equity, and we will continue to carefully
pursue it, building value into the balance sheet as we go.
5. Rising costs and lagging cash flow
It has been noted that our costs for operation and mining appear to be
high in relation to industry standards, and this is the case. At the
same time, our cash generation has not gotten to the point of covering
both Ashdown and Golden Phoenix. This is a direct result of two
unrelated factors. First, operating costs have been rising throughout
the industry at a startling rate due to price inflation. Secondly, the
challenge of bringing the Ashdown mine and mill on line quickly
required our Board of Directors to make the tough decision to commence
mining the ore body concurrently with underground development work
(the infrastructure needed to expand mining operations). I remain
convinced that this decision, borne of limited financial resources at
the time, was the right one. But it is not a traditional approach, and
the result is that ore production has been slowed to make time for the
gradual building of infrastructure, and vice versa. In other words,
management has purposefully divided its time and resources between
development and production in an attempt to sustain cash flow while we
build out the mine. This is not a perfect solution, but it is a
practical one. And it has worked. Our cash flow from sales is
presently sustaining the mining operations as well as financing much
of the infrastructure development needed to reach full production
capability. To the outside shareholder, things appear slow, and there
are worries that the mine cannot generate a profit. But in reality,
the mine is still under construction, and in a more perfect world all
this development work would have been financed and done before the
first mucker-load of ore was removed. As things stand, the mine
continues to perfect its production capability, as evidenced by the
excellent quality and increasing quantity of its concentrates. But
development still needs to be completed before the mine is at full
operations. This includes the construction of the secondary escape
way, which will deliver the mandatory ventilation needed to support
more men and machinery below ground. So continued patience is
required, with the knowledge that the Company is methodically working
with its partner to bring Ashdown up to full production this year, at
which point cash flow is forecast to substantially increase.
6. Delays in delivering the NI 43-101 and IP studies
It has taken us over a year to generate the NI 43-101 feasibility
study for Ashdown and we are still processing data from the Inverse
Polarization study, first started back in April of 2007. The time
lags are a function of three things:
(1) After 20 years in hibernation, the mining industry has come back
to life, but with far fewer trained engineers and geologists to
perform an ever-increasing demand for technical work. Competition
for third-party expertise is intense, driving up the costs and
extending the delivery times for these services. Both the
NI 43-101 and the IP study must be performed by outside experts,
so we are beholden to the availability and willingness of these
professionals to perform.
(2) The work being performed is highly technical, and because it is
extremely important to the Company's future prospects, it is
closely monitored, which means the work must be meticulous and the
results must be scientifically supportable in order to receive
engineering stamps, all of which takes time.
(3) Our own in-house technical staff is managing many different
projects and aspects of the Company's growth, and therefore does
not have the luxury to ride herd over any one individual project
but instead must divide its time and effort among many important
tasks.
Nevertheless, whether fast or slow, Golden Phoenix does deliver on its
promises and projects, and will continue to do so. As our cash flow
strengthens, we will be able to bring in more talent to expedite these
projects and hopefully shorten delivery times significantly.
7. Reluctance of institutional buyers to invest in bulletin board stocks
It is a reality of the investment world that most institutional
buyers, whether brokerages, hedge funds, bankers or private equity
managers are either reluctant or not permitted to invest in penny
stocks, especially those on the bulletin board exchange. As a result,
Golden Phoenix has very limited institutional ownership. The
institutional ownership it does enjoy is vital to its long-term
objectives and deserves to be expanded. So while our shareholder base
is reported to be over 4,500 individual investors, they are
principally made up of private individuals supporting the share price.
After many years of this support, it is not surprising that some of
you have become weary, both financially and psychologically. The
solution is simple. Management is working to bring Golden Phoenix to
more robust trading platforms, such as the TSX in Canada, where the
exposure to institutional buyers will be much greater and the comfort
level of those buyers will be higher. We will continue to trade on the
OTC BB as well, until such time as we qualify for an alternate
exchange in the US. It is a credit to our staff that, three years
after taking over, the company now appears to qualify for full listing
on the Toronto Stock Exchange. There are several technical procedures
to be handled, but the process is well underway, and we are moving in
that direction as quickly as possible.
8. Communication with our Shareholders
When we first began the Company turn-around, we made concerted efforts
to communicate, sometimes daily, with our shareholders. Those times
were uncertain, the share price had dipped to as low as nine cents,
and survival of the Company was a major concern. The result has been
the development of our website and the issuance of dozens of press
releases. However, as operations have normalized and financial
pressures have eased, we have gotten into a production routine causing
our communications to become less intense and more traditional of a
typical mining enterprise. Many of you have made it clear that this is
not acceptable. Having set a high standard for shareholder
interaction, you expect it to continue. We hear you, and we are doing
something about it, beginning with this letter. Henceforth, every
time a Form 10-K or Form 10-Q is filed, we will simultaneously publish
a letter from management intended to help you put the meaning of the
numbers in context with our business strategies. Also, we have
contracted with E&E Communications and its principal, Paul Knopick, to
provide additional investor relations support through the next several
months, in order to help us catch up with you. As our workload has
increased, our ability to spend time with individual shareholders on
the phone and email may decrease, but our commitment to communicating
effectively will not.
9. Responding to an historic surge in moly prices
I have already touched upon the reasons we elected to begin production
at Ashdown. But I want to restate it, as it is probably the least
understood aspect of our growth strategy. A deposit as rich and
promising as we believe Ashdown to be would ordinarily call for a
detailed feasibility study (the NI 43-101 we just produced) to be
performed first, followed by an initial funding effort to raise the
money needed to build out the underlying infrastructure, and then a
permitting and construction push lasting several years, before
extracting the first ton of ore. That is the traditional approach to
mine development. But because we had excellent data about the ore
body gathered prior to our arrival coupled to a rapidly rising moly
price hitting all time highs, it was decided to get down to the ore
face and begin extraction and processing right away, and then perform
the massive infrastructure development needed to bring the mine up to
full production capacity later. Sixteen months into production, we
are still performing the development work needed to bring the mine
into full design capacity, and will be for several more months.
Therefore, it is premature to expect the mine to perform at its
maximum level at this time. People tell me "Ashdown only made
$X million dollars last year," as if that were some sort of failure.
Just the opposite is true, the Ashdown Project made millions in sales
with an uncompleted mine, and still advanced its development work
significantly. This year we intend to complete that process. That is
when we can all look to our production levels and examine our
performance metrics. Until then, all development, exploration and
mining costs are essentially bundled into our numbers, resulting in
higher operating costs then ordinarily expected in the industry. In
time, as our production rises, these costs will level off and drop,
and we expect to see our metrics fall in line with industry averages.
This approach was chosen purposefully as the best solution to a
challenging situation, and it is working as planned.
10. Underlying weakness in the credit and mortgage markets
In many ways, for the world of macroeconomics it is the best of times
and it is the worst of times. Looking at the positives, the worldwide
bull market in commodities and metals is in full bloom, with no sign
of abating any time soon. Prices for our products, including gold,
silver and molybdenum, are at exceptional highs. And demand for our
products is universal and international in nature. So Golden Phoenix
is extremely well positioned to perform going forward. Looking at the
negatives, the financial markets, which include the credit markets
that mining companies use to fund capital expansion, are reported to
be at 15 year lows. There is fear and uncertainty in the marketplace.
While overall, stock markets are holding up their averages, mining
stocks are generally down, even in face of all time highs for metals.
This is a schizophrenic environment, but one which I believe will
eventually resolve itself to the upside, with the resumption of the
"commodity bull" charging forward. It is management's intention to
use this period of market correction to complete the work needed to
make Golden Phoenix attractive to serious investors during the next
upturn. Our list of objectives includes:
-- Perform an in-fill drilling program at Ashdown this summer to build
up the moly reserves and guide future mining;
-- Drill up to 140,000 feet at Mineral Ridge over the next two years
to contribute to our feasibility study, building up our gold and
silver reserves;
-- Begin trading on the TSX;
-- Establish a track record of profitable operation in order to remove
references to "going concern" in future financials;
-- Satisfactorily complete the arbitration;
-- Complete the engineering and permitting to allow for construction
of a mill at Mineral Ridge, leading to the start of gold and silver
production some time in 2009;
-- Initiate a molybdenum bulk sample program at Northern Champion;
-- Expand our portfolio of properties;
-- Increase public awareness through focused retail sales and
marketing programs;
-- Fund these objectives through a variety of means, blending equity
and debt sources and containing dilution as best as possible until
positive cash flow from Ashdown can sustain Golden Phoenix and
generate surpluses.
This much I can assure each of you: The dedication and competence of the staff we have assembled is unparalleled. We are one of only a handful of junior mining companies that has amassed the technical skills, operational experience, property portfolio, production know-how and exploration capabilities under one roof. We are one of the very few that actually generates a saleable product, a molybdenum concentrate of the highest-quality that capitalizes on a strong demand at record prices, and which shows no sign of abating.
So while the share price is of concern and certainly demands our attention, first-and-foremost I remain proud of the Company, confident of its business plan, and certain of its employees and their ability to execute our plan to everyone's benefit.
I urge all of our shareholders to step back from the emotional rollercoaster of the markets and take a dispassionate look at Golden Phoenix, its present reality and future potential. I remain unbowed, undaunted, energized and confident. I wish the same for each and every one of you. Golden Phoenix is forging a golden future, and all the shareholders who have withstood the last three years of methodical restructuring deserve to be around when the world-at-large finally recognizes our Company's true value.
With best regards,
Robert P. Martin
President
Please visit the Golden Phoenix website at golden-phoenix.com
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