Introduction
Timing is critical for making investment decisions. Sometimes the timing seems so fortuitous as many factors coalesce into a critical juncture. Such is the case for emerging gold producer, Great Basin Gold (GBG), to be commencing production during this run up of the precious metals bull market.
Situation Analysis
GBG undertook a $145 million dollar financing in March 2009, right in the midst of a major dip of confidence in the stock market. The fact that Great Basin Gold was able to finance during the downturn speaks volumes about the credibility of the company, but never-the-less this financing added 115 million shares that caused an overhang in the stock price. So the GBG stock price has experienced great volatility this summer and fall, churning up and down without a consistent direction or pattern.
The stage for GBG has been set as shown in this years chart of their stock price following.
Figure 1: Chart of GBG.to showing the trading within the symmetrical triangle. Source: Cdnbeau posting on TradingChief.com.
Note the up and down movements in the stock price describing the upper and lower bounds of a symmetrical triangle, heading towards an apex solution in December of this year. The gyrations certainly looks similar to a coiled spring that is about to be released. On Tuesday, December 2, 2009, GBG exhibited a breakout of the bounding triangle and shot up for a 7% gain on high supporting volume. This chart is signaling that an opportunity is available here.
Trend and Timing
Before going further, let us step back and examine some environmental and other timing factors:
1. Is the general market in an up trend?
Yes, one can say that the general markets are buoyant and are still in a continuing up trend recovery from 2008. The general markets need to be trending upwards for supporting a movement upwards.
2. Is the precious metals market in an up trend?
Yes, the precious metals market are certainly bullish. The price of Gold has recently crossed the $1000 USD barrier and has successively breached $1100 USD and just surmounted $1200 USD on December 1, 2009. Great Basin Gold is a producer that will announce increases in new Gold production.
3. Are the seasonal tendencies right for a movement upwards?
Yes, the timing is exactly coincident for the year end pruning and adjustment of institutional portfolios. Institutions should look favorably upon Great Basin Gold’s prospects as they add to or increase their portfolio. The markets are ready for a “Santa Claus” rally.
4. Is Great Basin Gold ready for a movement upwards?
For a more detailed answer to this, I refer the reader to my previous report on Great Basin Gold accessible here. Yes, Great Basin Gold is just turning the corner into becoming a viable mid-tier gold producer. They are test mining at their Hollister mine in Nevada and are on track to produce 110 k ounces this year. Their Burnstone mine in the Witwatersrand Basin in South Africa has completed their underground development work and is constructing the surface plant to be ready to commence milling operations in June 2010.
Great Basin Gold is entering production at a confluence of positive trends and timing.
Great Basin Gold Opportunity
Next is how to capitalize upon this perceived opportunity. The basic play would be to invest in some shares of GBG. An interesting and possibly more lucrative way to leverage this situation is with tradable warrants for GBG. They were issued at the same time as the $145 Million financing. A copy of the TSX bulletin announcing the trading of Great Basin Gold warrants is posted here. See the table below for the specific warrant details.
Great Basin Gold - Warrants
Figure 2: Great Basin Gold Warrant Details. Note that the life of the warrant expires on October 15, 2010; that is beyond that date, the warrant becomes useless.
These GBG warrants are especially appealing presently, as they are in the money, the GBG shares being above the $1.60 (Cdn) exercise price. The GBG.wt.a warrants were bargain priced at 40 cents (Cdn) on December 2, 2009. As the GBG shares closed at $1.80 on that date, the warrants have an intrinsic value of 20 cents (Cdn) and provide the investor with a 4.5 to 1 leverage. The writer does not expect this value situation to remain this way for long.
A further attraction of leveraging with GBG warrants is that the company Great Basin Gold is an extremely attractive takeover candidate. The writer wrote an opinion on GBG being an acquisition candidate posted here. Using the warrants for leverage gives the investor control of more shares with less initial capital outlay. This would play to the investor’s advantage should a takeover situation appear.
Warrant Quotation
A delayed quotation for the warrants is available from the TSX site.
Figure 3: Quotation for GBG.wt.a from TSX site.
Also, a delayed quotation may be obtained from the Advanced Financial Network site as follows.
Figure 4: Quotation for GBG.wt.a from Advanced Financial Network site.
Warrant Trading
Should you be new to warrants, the following are two sites that have warrant information for your perusal.
1. Precious Metals Warrants
This is a site run by Mr. Dudley Pierce Baker that has a free section and a pay section. There is a useful educational section that describes the various aspects of trading warrants.
2. Canadian Warrants
This is a Canadian free site that provides various tables of tradable investment warrants.
The warrants trade in Canada on the TSX exchange. For American investors, TD Ameritrade is reported to facilitate your trade seamlessly with their counterparts in Canada. If you use other trading facilities, you may have to trade via telephone. Do not ask your broker if they can do it, just be assertive and state the Warrant Cusip number along with other details of the warrant that you wish to trade.
Conclusion
To sum this opportunity up, a sage writer once penned many centuries ago:
There is a tide in the affairs of men, which, taken at the flood, leads on to fortune.
- William Shakespeare.
The timing for Great Basin Gold to be entering serious Gold production seems very fortunate; as all the discussed factors are pointing to a significant upswing in price for the shares of Great Basin Gold. An appealing way to leverage this situation would be by buying warrants to control more shares of Great Basin Gold in the possible upside coming.
Disclosure: The writer holds a long position in Great Basin Gold (GBG)
Marco G. December 2, 2009 http://goombarhsedge.blogspot.com/
Important Disclosure
The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.
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