I think the reasons why GRERF is going down is due to the following.
Here's an update on some pending developments at Greenstone Resources (GRE-TSE) which could make it one hell of a short sale over the next week or two.
Here's the situation:
Greenstone currently owes their contract miner, Brown & Root, Inc.,
approximately US$2 million. Brown & Root has not been paid by Greenstone since January 1998 (my source tells me that over the past 30 months, only two of Brown & Root's monthly invoices have been paid on time!!).
Brown & Root intends to declare Greenstone in default of their mining
contract if the account is not brought up to date by Friday (July 17th). If this happens (default), Brown & Root intends to shut down their trucks and stop mining ore. Brown & Root will not be putting out a news release,as this contract / debt is insignificant to a multi-billion dollar company.
The real question is, will Greenstone admit to the default??
Figure that whenever / however the story comes out, the markets are going to react very negatively. Santa Rosa (Panama) is GRE's core asset,providing much of the company's gold production and cash flow. How could anyone spin a contractual default (and curtailment of mining operations) as
anything but bad news??
There are a lot of unanswered questions that Greenstone's management is going to have to face. First, why is Brown & Root getting stiffed by a company that, according to its March 31, 1998 financials, had approximately $20 million cash in the bank ($40 million as of December 31, 1997!!). Is GRE's burn rate $20 million a quarter, or is management foolishly playing hardball? GRE may not realize that Brown & Root is fed up and has "drawn a line in the sand" concerning this contract.
Other possible contributing factors to the pending confrontation between GRE and Brown & Root include rumors that Greenstone has seriously understated cash operating costs at Santa Rosa (I've heard estimates that cash costs aremuch higher and that the company may be struggling financially. It may also be that GRE has exhausted all their cash in building /expanding mines in Nicaragua & Honduras, and needs to save money wherever and however they can.
Greenstone's stock has fallen sharply this month. Over the last few days,there are unconfirmed reports that a fund unloaded 1,000,000 shares,driving the price from about Cdn$5.50 to Cdn$4.10. Supposedly, this happened because the fund had enough redemption requests that it needed to raise some cash (gut feeling - they got inside information from one or more of the analysts that follow the stock).
The pending confrontation between Greenstone / Brown & Root may also shine light on the growing dissatisfaction among the analysts regarding Greenstone's management team - mostly that the officers and directors(chiefly Rudi Fronk, President & CEO) have failed to achieve a number of well-publicized start-up dates and production targets for their mines. Rumors are that several analysts plan to downgrade GRE, and recommend that shareholders sell their positions.
Probable course of events - Brown & Root officially notifies Greenstone of default on Friday (17 July); Greenstone has 30 days to rectify the default(i.e., get accounts current), or the entire matter goes to arbitration.
However, before getting to arbitration, it seems likely that Brown & Root would exercise their contractual / legal rights to cease mining operations,and ship the mining fleet back to Houston - in which case, Greenstone has to quickly arrange for lease / purchase of a new fleet in order to have any hope of meeting their production targets (when Brown & Root was originally awarded the contract, it took about five months to get the trucks from Caterpillar's factory to the minesite).
No matter how you spin it, if Brown & Root delcares Greenstone to be in default of the mining contract, GRE is screwed, and their share price falls. How fast and how far depends on how management deals with the problem, and what the contributing factors are - is GRE broke, or is the mine uneconomic? Both?? More???
Gut feeling: GRE could fall to Cdn$1 - Cdn$1.50 before it hits bottom.
To be fair, if the properties in Honduras and Nicaragua are as good as they believe they are, GRE's stock could rapidly rebound (Cdn$3 - Cdn$5/share)once the truth comes out about Santa Rosa / Brown & Root (this probably will not happen without an accompanying change in management).
Any thoughts???????
Mr Metals.
DISCLAIMER
The above information is based strictly on rumors and second party information which could be true or false. If any of the above come true, it was not from the company, Brown & Root or any of the directors of either company. DO NOT short, sell or buy this stock based on my information.
|
