Hi, Erelation,
You had earlier pointed out some negative issues that could be of concern to Liongold shareholders. It is good to know such issues but we need to look at these issues with an objective and positive mindset. For example how would such issues affect the profitability, share price and survival of the company (if they are valid) and how could we gain from such a situation. It is to be noted that these issues relate to the past BEFORE the stock even reached a high of $1.75. When the stock market or individual stock hits its bottom end, there will always be no lack of fearful reasoning and concerns; and those with negative mindset would always advocate against investing and thus missed out on golden opportunities to make money. Such behaviour is not unusual. Hence, the best opportunity to buy is always at the time when the majority simply has no courage to buy.
You raised the question on why insiders are not buying Liongold shares at the current depressed price, Based on reports that shares belonging to insiders were forced sold by banks, one can only deduce that insiders would have gotten cash strapped and just have no money to buy.
The current “problems” that Liongold has got itself into, have adversely affected its future prospects to a certain extent. Group CEO, Nicholas Ng has already stated that Liongold is now at a “significant disadvantage relative to other resource and mining companies given the abundance of opportunities to acquire undervalued producing gold mining assets which are complementary to our existing operations.”
The link below provides investors with some interesting facts on Liongold –
liongoldcorp.listedcompany.com/misc/Lion...heet_October2013.pdf
[Investors Factsheet Oct 2013]
Fortunately, Liongold’s resources have already grown to a grand total of 7 million ounces of gold and its Australian Castlemaine Goldfields is in production phase with current year’s output reaching about 50,000 ounces. The management had intention to raise the Group’s gold resources to 10 million ounces, reserves to 2 million ounces, and production to 200,000 ounces per annum by the end of 2014, through acquisitions and organic growth; and a fund raising exercise was initiated in August 2013 to raise a total of slightly over S$200 million from a placement issue of 180 million shares and 135 million warrants. The fund raising was aborted following the recent collapse of its stock price.
To get a feel of the company’s current asset value, one must consider the likely outlook for gold prices over the next few years. Using Castlemaine as an illustration, the production cost here is around US$1,000 per ounce of gold. If the company sold all its annual gold output [50,000 oz] at an average price of US$1,300 [Profit of US$300}, its profit would be – 50,000 x $300 = US$15 million. (or contributing 1.5 cents to Liongold EPS). Every $100 increase in the gold price would result in an additional profit of $5 million. If gold price was to rise to its record high of US$1,900, its ADDITIONAL profit would be US$30 million (or additional 3 cts EPS). In the event that Liongold Group can achieve an output of 150,000 oz of gold a year, its earnings may well reach US$135 million or EPS of 14 cts (before dilution) should the price of gold move to US$1,900 level and Liongold’s production cost remains at US$1,000..
It is to be noted that Liongold made acquisitions of gold miners in 2012 when gold price was in the US$1,500-$1,600 range. Market Vectors Gold Miners ETF (GDX) was then trading at US$40 - US$50 range; the price has since slumped to the current level of around US$24. Hence, Liongold acquisition in 2012 would have also suffered a significant contraction in investment value.
As at 4/10/2013, Liongold has –
· Issued Shares – 941,186,540
· Warrants – 250,893,523 convertible at 1:1 to mother shares @ $1.1717
· Convertible bond: $20 million @ 9% due 2015
Conclusion:
I hold the view that it is only a question of time before gold would rise to test its last record high of around US$1,900. Having the benefit of hindsight – seeing gold tumbling to its current price towards production cost level – I still prefer to invest in gold miners ETF as the downside risk is lower and the margin of safety is better. In the event that gold retest its record high, there is good likelihood that the ETF would also retest its record high. Liongold has higher risks but also higher gains. It is for each risk takers to decide.