Monday, June 28, 2010

Great Basin - A Golden Opportunity


The author first took notice of Great Basin Gold (GBG) close to a decade ago, when an associate mentioned the stock about a new mine starting up in the Witwatersrand Basin of South Africa. Well, this same company’s prime mine is now scheduled to begin milling ore next month in July of 2010; as they say about the plans of mice and men that often go awry, “leave us naught but grief and pain for promised joy.” We the believers in GBG have had to endure a lot.

The author first penned an article about this stock in November of 2009, believing major upside was imminent. The stock did some quick movement up until December 2009 and then settled back with the price of Gold easing off. Now in June 2010, the price of Gold has just made some moves to new peaks this spring and GBG is now positioned to have two operational mines come on stream. Is there a Great (Basin) Gold (startup) occasion opportunity just around the corner?

Gold Price at Peak

The Gold price has just been on a tear recently, and has hit highs in all major currencies including the laggard Canadian Dollar. See the chart below “1 Year Spot Gold US Dollar vs. Major Currencies” for the latest year’s price performance of Gold.

Figure 1: Price of Gold in Six Major Currencies. Note that highs for all currencies have recently been achieved.

Shares Slump

Great Basin shares were priced above $3 prior to the economic upheaval in Fall of 2008. GBG shares collapsed to lows of $.75 in October of 2008. In 2009 GBG was recovering nicely to $1.90 in a V shaped formation when in March of 2009, investors were hit by a huge 45% dilutive financing of 115 million shares. Since then the stock price has been slowly meandering its way upwards, never mind that there were two major gold mines coming on stream in 2010. The idea of this company becoming a mid-tier gold producer just did not excite the markets any more. The stock just drifts sideways with brief flurries of ups and downs. In January of 2010, there was political news from South Africa about the youth wing of the ANC declaring an intention to nationalize the South African mines. Though the radical views were disowned by Mineral Resources Minister Susan Shabangu and South African President Jacob Zuma; these views are very unsettling for the financial markets. So GBG share price just drifted sideways again until recently in June 2010.

See the GBG Stock Chart following for the last 3 years' performance.

Figure 2: GBG Stock Price 2008 - 2010. Note the slump since November 2008

Startup Story

Great Basin Gold is a startup gold miner with two mines in a start up sequence. Their Hollister mine in Nevada has been performing trial mining for two years already while permits are being authorized. GBG should finish soon refurbishing a mill at their Esmeralda operation, also in Nevada, with the intention of using this mill for their Hollister production.

Great Basin’s nameplate mine is Burnstone in South Africa. This mine is slated to begin operations in July 2010. The financing and project deliveries are coming together to bring this mine operational.

See this previous February 2010 article about Great Basin bringing two mines into production in 2010.

Financing Funded

Great Basin on April 6th 2010 announced the creation of a $47 million credit facility and on May 21st, 2010 announced the execution of this same credit backing. Although the mines were fully funded for startup, this credit facility makes the financial supports more flexible for the Burnstone mine startup operations.

Project Punctual

Great Basin has published a couple of recent news releases updating the markets about their delivery of the Burnstone Mine. On May 13th 2010, Great Basin reported the completion of a ventilation shaft and mill deliveries. On June 2, 2010, Great Basin gave an update report of Burnstone project progress.

Profit Planned

At the beginning of this year Great Basin gave guidance to the financial markets of 195,000 oz. of Gold in 2010. GBG reported a loss of $.02 per share for the first quarter of 2010 on May 10, 2010. This author listened to the webcast after the first quarter report and heard about the monetization of the Hollister ore stockpile by selling the ore to the Midas mine of Newmont (NEM). GBG expects to realize about $26 Million USD in proceeds with this transaction. GBG reported settlement of a dispute with Queenstake Resources (YNG), which clears the way for ore sales to Newmont on June 21, 2010.

Significance of Substance

So in summary, the company is gearing up for production in Hollister, Nevada and in their Burnstone mine in South Africa. For Hollister, they will monetize their existing ore stockpile and their Esmeralda mill is up to speed in handling all the ore excavated. The Esmeralda mill is capable of producing 10,000 oz. of Gold equivalents per month. For Burnstone, all the project pieces are slowly coming into place and the July start up of the mill appears to be achievable. GBG is running the Burnstone mill at only 50% capacity to iron out the bugs. The Burnstone mill is capable of producing over 20,000 oz. of Gold per month.

If Great Basin comes close to their target of mining 200,000 oz. of Gold this year, the company will turn into profitability. Actual reported financial profits will bolster the stock price significantly, as dollars talk better than promises and uncertainties to the financial markets. Also the timing in the price of Gold moving higher is quite fortuitous. It certainly has been a long time coming for long time investors.

Disclosure: The author is long Great Basin Gold

Marco G., May 14, 2010,
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