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Eric Chalker's Blog - RSS Feed

Eric Chalker's Blog


Greatland Gold, great excitement

Fri, 1st Dec 2017 - Author: Eric Chalker

With 3,000 share posts on this website alone in the last 7 days, excitement is evident.  However, those who attended yesterday’s AGM may now be rethinking their positions.  It’s not that there’s a lack of value, but expectations of becoming rich overnight are suffering a setback and this can be seen in some of the share chat. 

Greatland Gold plc (GGP) is a gold exploration company active in Australia.  It has been doing this for more than ten years, having been launched on the AIM in July 2006 with an initial market cap of £3 million and a share price of 2.0p.  Today the market cap is £56 million, but the share price is still (almost) 2.0p.  This is a company which has continually had to raise cash and is still doing so, but at last long term investors may be rewarded.  Recent licence acquisitions, surveys and hours spent analysing data have enabled the directors to make a series of announcements which suggest there is great value waiting to be exploited.

 

Annual General Meeting, 30 November 2017

At the unsurprisingly well-attended AGM, the directors had to disabuse some of those present of the idea that it will now be a simple matter to dig out gold nuggets and distribute the sale proceeds by dividend.  Even this did not dim the hopes of those who are anticipating a highly favourable report from Newmont Exploration Pty Ltd, contracted by Greatland to use proprietary technology for site evaluation.  The report is now expected very soon.

There are some who expect the Newmont report to be followed by an immediate take-out bid from that company, or (even better, of course) a battle royal with other potentially interested parties, resulting in a real bonanza for Greatland Gold shareholders.  This may happen.  Greatland has exploration licences in five other locations and some of those are showing distinctly favourable mining possibilities too.  It is the combination of these factors that has driven up the share price twentyfold from its low of 0.1p.

Any investment in a mining exploration company is bound to be speculative and difficult to value.  Success is heavily dependent on the expertise and diligence of individuals, on finding investors ready to part with their cash and on luck.  Greatland has recently been favoured by all three.  Even so, the share price is still based solely on speculation and, as one shareholder said yesterday, it could simply collapse.  That is why I, as a Greatland shareholder since 2007, with my holding multiplied ten times since then, sold half my holding late October, at 2.222p per share.  The money I had at that point in this one company was simply too great for me in what, value-wise, is still a speculative venture.

My remaining investment in Greatland is still, for me, a significant one.  What bothers me and others about it – and this was reflected in a number of questions and observations at the AGM – is the absence of any clear indication of the directors’ intentions, or even their thoughts, about how to turn what is under the ground into money in the bank and, eventually, shareholders’ pockets.  It is understandable that after so many years of being able to do little more than report on exploration, which is all the company was really set up to do, the directors may have been taken by surprise by the events of the past six months. 

 

How will the board capitalise the assets?

It certainly appears, from the annual report and responses to questions at the AGM, that the directors have yet to think through how to exploit what they, very much to their credit, have discovered and secured for the company’s shareholders.  This will be a different sort of challenge and while we can see that the board has two non-executive directors with experience of takeovers, mergers and the like, it may suffer from the absence of sufficient marketing ability to capitalise fully on the value that flows from its successful exploration.   At the very least, investors need to understand how the board ranks its options, particularly between selling an unexploited asset, or actually exploiting it whether alone or by joint venture.

There is also a lack of information about the board’s intentions concerning further exploration.  The published strategy, such as it is, includes “developing mineral deposits”, but it isn’t at all clear what the board means by “developing”.  The OED interpretation is to make the deposits larger, which implies further exploration and technical assessment, but not turning them into money.  The chairman has told us the board intends to “capitalise” on “the outlook for gold, precious metals and selected new energy metals,” but only “by advancing our existing projects and seeking new projects……”  With £4 million in cash and the authority to issue a third more shares than currently exist, there must be some concern that exploration will take precedence over actual mining, or even over an asset sale.

The board’s request for authority to issue more shares was not met without some demur by those attending the AGM, especially as they will not be offered first to current shareholders.  Some present expressed concern about dilution, which was met with the suggestion that more equity would only be used to obtain equal value assets, but the realisable value of every asset purchased is to some extent speculative so there can be no certainty that dilution of existing holdings will be avoided.  What passed without comment, though, is the fact that the recent exercise of warrants has already raised the number of shares by 48.6 per cent since 30 June 2017 and there are further warrants outstanding which could add 2.3 per cent and management options equal to 10.3 per cent.

The AGM was told that the authority to issue another 1 billion shares was not expected to be used.  However, if it were and if all outstanding warrants and options were exercised, the company’s equity would have been increased by a total of 111.6 per cent since 30 June 2017.  At 2.0p, the market cap would be £85 million.  That is a lot of gold, yet to be extracted and sold.

 

 

Eric Chalker, UK Shareholders’ Association Policy Co-ordinator & Director, 2012-2016

 

 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.



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