Thom @ BabyBulls: Great Basin Gold's Ups & Downs
By December 3, 2011– Published in on
GBG shares have shed 70 percent of their value this year, mostly because Great Basin Gold was excellent at promoting its long-hole stoping methodology and dismal at executing it.
Here is where we stand: A sell-side analyst after a mine visit to the Burnstone property in South Africa threw cold water on GBG’s efforts to employ long-hole-stoping methods to improve efficiencies and mechanize mining development. LHS is a way of excavating that is similar to diging an underground quarry. But it requires precision.
GBG, led by CEO Ferdinand Dippenaar in Johannesburg, almost surely could have defused the early long-hole-stoping controversy by spelling out just why at least two trial-and-error attemps were mostly in the error column. (I believe but have not confirmed that at least one executive lost his job over all this.The LHS layout is now in its third blueprint, or iteration, one analyst from RBC says.)
Now that the company’s equity value of $500 million is a third of what it was earlier in the year, Ferdi Dippenaar is on the road, explaining why LHS is “the future” of mining in South Africa. On Dec. 12, GBG will bring analysts to Burnstone in an attempt to clear the air. “We started out on a trial basis, and we said that previously,” Mr. Dippenaar says. “We have improved the mining method; I am thrilled we did evolve the design where we now do less development, for more tons and ounces and less dilution.”
He adds the current market cap reflects only GBG’s second mine, Hollister in Nevada, at $1700-ounce gold. I have been to both several times and in my most recent South Africa visit, came away, I am sorry to say, awed by LHS and its possibilities. I was wrong then, coping out the stoping, asking tough questions but then believing before the proof was available. I hope to be right now.
Several large shareholders and one analyst tell me it is not enough that Mr. Dippenaar is saying he will correct the long-hole stoping methodologies, thus boosting mine development and ultimately, ore yield. No one in their right mind will send the 93-cent shares higher UNTIL visible results of accelerated production are published. I agree.
Nevada’s Hollister, the other GBG mine, actually employs some select LHS methods. That mine is amazing ... lucky for GBG shareholders; otherwise, its $500 or so million market cap would be greatly reduced from its dimished level and GBG's accumulated debt would be toxic.
“It’s criminal. Burnstone will be a success, believe me. The (London-based sellside) analyst spoke crap,” FD says. At least two other banks followed the original analyst’s report with downgrades, lowered ratings or reduced guidance of their own.
I thought the original report, from RBC's European team and led by Leon Esterhuizen, was an eye-opener. Part of it follows:
The stope layout continues to be changed (currently on its third iteration),
whilst the impact of faulting in the ore body appear greater than management
had previously anticipated. Although the method could still work, we believe it
will deliver lower efficiencies (lower grades, higher costs) than initially
I have reported extensively on Burnstone and Hollister and see this as a special situation. If GBG gets more ears next week in London and after that on the site tour, the shares will gain 20 percent in short order; they’re now at 93 cents USA, a level that will have me adding to my money-losing GBG position in a bid to even out my gaping losses. If I were not in China next week, I would be on this revisit. Pray tell, Mr. Dippenaar, prove me -- and this 10-month-old report -- https://www.google.com/search?gcx=c&ix=c2&sourceid=chrome&ie=UTF-8&q=sdippenaar+calandra -- right.
The money I have lost, on what looked like outpacing GBG shares at the time, is my own special situation. I want peace in the world. I want people to forgive me my sins. And I want GBG to fix the skewed stoping and to publish a steady stream of increased production figures from an otherwise-sound mine. I know hardened investors will be purchasing the shares at 90 cents, speculating that GBG finally gets it right.
COLOMBIA: Paul Harris in Medellin writes up the latest on several companies, and, importantly, the layout of the government’s plan to create strategic blocks of energy and metals properties. If the government carries through, individual speculators will find it difficult to lock up exploration parcels. Companies that are banking on their applications for mineral licenses for pending concessions might be up the Cauca River without a paddle. We’ll see. Here is Paul’s report: Colombian Mining December 2011.
NOTES: I am a partner of investor outreach firm Torrey Hills Capital in Del Mar, near San Diego, California. None of the companies in this article are clients. … For blow-by-blow on market thoughts, meanderings and purchase/sale actions, check out my StockTwits: stocktwits.com/thomcalandra. … We also have our own BabyBulls Twits at http://babybulltwits.wordpress.com.
TRAVELS: I will be in Hong Kong and Shenzhen the week of Dec. 5. I am attending a Shenzhen investment conference at the Sheraton in that Chinese city. … I will be at Cambridge House’s January conference in Vancouver. In a new development, Cambridge will have three speakers, including moi, giving tours of select companies on the exhibit floor. Serious investors must contact Cambidge House to register.
HOLDINGS: You can see my portfolio online. It is under the Stockhouse.com portfolio function and my user name, which is TCALANDRA. I am neither a financial adviser nor a certified planner. Nearly all of my holdings are metals equities. I also own gold and silver bars and coins and a Marin mountain bike.
-- Thom Calandra