A BCMD SCENARIO.... COULD IT BE?
Preface: I recently sold off a sizeable long position in BCMD because I no longer could make sense of the company's management of its news and investor relations. I have believed, and still do believe, that BCMD holds major gold properties and will be a very profitable company in the future. I hope to invest in the company again, but I was not content to watch the company's steadily diminishing share price cause further short-term damage to my investment portfolio. Along with several fellow investors I have participated in speculation that lately BCMD may have actually been trying to suppress its own share price in the short term, although we have not formulated a clear motivation for that course of action. The following is such a scenario, with a possible set of motivations. I do not subscribe to it, but I think it is possible, and I don't have a good alternative way of understanding what BCMD has done to date. My scenario is not wishful thinking, because as I have said, I do not own the stock at present; if it seems a tad conspiracy-driven, I'll admit to skepticism that Oswald acted alone, and a general belief that people and institutions often conspire for profit. Reading the BCMD 10Q, it seems almost laughable that this company would in effect be announcing that it had sold 250-300 ounces of gold in 1997, with inventory of another 100 ounces jewelry grade, and nothing more to say on the subject. I would appreciate responses and alternative scenarios from any reasonable quarter.
Scenario: BCMD
BCMD currently is in the process of maximizing its capacity to mine and mill large quantities of gold from multiple sites in a short time, and will do this in 1998. After having used vagueness and understatement to allow it share price to fall from a over $1.50 to a current price of about 50 cents and falling, BCMD will quickly begin selling this gold to produce major revenues and net profits, much of which will be used to buy back newly registered shares cheaply during the second quarter and thereafter. These shares will be bought back at market prices compatible with the 25- to 35-cent range available to Sterling, the joint venture partner (a discount of 40-60% from yesterday's price, just as yesterday's price was a discount of over 60% from the price the day the joint venture was announced).
At some time, possibly in early May, but perhaps not until the release of the second quarter 10Q in mid-August, and conceivably even later, BCMD will report the following:
1. Using gold revenues, it is buying back shares at a furious clip which will reduce the company's outstanding shares and float to a level palatable to the market;
2. The company's cash position is secure because of Sterling's JV infusions, gold production, and a new jv partner for diamonds; and
3. Since the share buy back dollars are simply a balance sheet transfer, the company has become extremely profitable, with a desirable p/e outlook
The share price will then soar, to levels many on this thread were expecting back in the fall of 1997.
Shareholders who bought then and sold at serious losses will be angry, and there will be talk of legal action against the company for artificially suppressing its news and share price, but once the company's share price has risen it will be hard to argue that the strategy was not in the long-term interests of investors.
If this scenario or something akin to it were to transpire by the first week of May, it might keep BCMD from what now seems like the likelihood of pink sheet status. If it were not to occur until a later date it would still be possible for the share price to soar and for re-listing to occur, possibly after a reverse split.
Could the company mine and mill sufficient quantities of gold to carry out such a strategy effectively? My arithmetic says that they could. Between January 1998 and January 1999, they reap $3.1 million from the joint venture partnership, enough to pay the production costs for mining 17,222 ounces of gold at an average cost of $180 per ounce. Sold at $300 per ounce, these 17,222 ounces of gold would generate revenue of $5,166,167. At 25 cents a share, that cash could buy back 20.6 million shares. While it is probably more realistic to anticipate that the company could only ratchet up production sufficiently to produce 12,000 ounces of gold during 1998, that level of production would provide cash enough to buy back 14.4 million shares. The company certainly believes that it is sitting on sufficient quantities of gold to make these figures attainable.
If this scenario were carried out, the company's balance sheet would be impressive one year from now, its reputation as a producer would have been established, its profitability would be clear, and its stock would be selling for a lot more than it is today. The scenario begs the question of whether the revenue stream could meet the needs of share buyback expenditure stream, but that situation could be managed effectively with sufficient cash, and perhaps some flexibility from the jv partner(s).
Just a scenario.
Oscar |
