One-Trick Pony

If anyone feels as if they've lost their bearings and are wondering what to think how such a disaster as the losses expressed in the fourth quarter could occur, I would strongly recommend reading through the Waterton deal to gain perspective.

I would characterize the Waterton deal as simultaneously a standstill, a lien, and a pre-paid loan. The deal relieves the possibility that anyone writing synthetic derivatives such as an equity swap can then turn around and force the sale of the company to a third party. An unlikely buyer will have to buy at market, sight-unseen. (its still a no-brainer, what with the company trading below asset value.)

The amount of $20m. dollars in cost of revenue is the amount of the loan. Very likely the loan has been pre-paid, though the deal only closed in Q2 fiscal 2013, and the company will simply be obliged to pay only interest while Waterton doles out the tranches. At a production rate less than 45K ounces, there is no way they can pay back the loan.

The one sub-clause within negative covenants that I don't really like at all are no distributions. The deal requires no dividends to be paid out. If there are improvements to the size of the ore shoot or an expansion to the Roy Lloyd mine, hopefully they will see the error of their ways. Gold mines during the depression mostly provided no equity return.(except large outfits with no fixed par value) Yields made the investment case for many years.

One sub-clause in the negative covenants you might like is no further dilution.

Look under Material Document(s), for August 10, 2012.

http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00007862

This leaves GBN.V with only one avenue, to lay their cards on the table as regards their knowledge withheld on the Roy Lloyd mine, which they're not going to do.

I'm not convinced that lowering grades and increasing costs consists of any improvement at all. In fact, fourth quarter results appear to dissuade any investment in the company whatsoever going forward.

Thus GBN.V has become a one-trick pony, with no possibility of a dividend payout, the only source of any shareholder value will presumably be expansion to the Roy Lloyd Mine. But, information on the Dickens Lake prospect has not been forthcoming, and has been restricted for years.

The company can do two things, either reverse spilt the shares or engage in a bankable feasibility study, to arrive at the necessary funds for building a much larger mill. To arrive at a share price advance, they are now obliged to lay their cards on the table. Of course, making the investment case shareholder-friendly completely escapes this management, who look down their noses at the shareholders as merely holding an option on the price.

Waterton can easily back in to the company and take it private should it suit them, since the shareholders are now the only proprietors of the company, with no outside encumbrances, according to the sub-clauses in the financing conditions. Their first step would be to buy a big chunk of the company. Make it so.

The only chart left to watch for the moment with any actionable strategy in this situation is the USB chart and GBN.V's strong inverse correlation with the bond price.

supersize:

http://www.flickr.com/photos/11747277@N07/7899730386/sizes/l/in/photostream/

http://scharts.co/Ug2uXd

-F6