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dbmarlowe01 and tcoutlook, thanks for your posts. eom
Thistime, agreed that there is a time and place for valuation theories and/or gut-feelings in investing, as well as a blend of the two. I agree with you that GSPG cannot (and should not) be used as a case-study in the finance classroom (and believe me, I belong in a seat facing the professor, not the other way around), since it isn't quite big enough (or exposed enough) to trade purely on fundamentals. All of the subjective info that you have brought up definitely needs to be added to the "equation", and investors won't find any of it in balance sheets or cash-flow statements (though some is "between the lines" if you squint real hard).
Some of you guys/gals (you, soyelpato, Cutting Corners, smitty01, etc) do this board a great service by bringing these points to the table, especially for folks like me who don't have the time/inclination to attend shareholder meetings or converse with management. And in an effort to balance things out a bit, I (along w/ many others here) focus on the more traditional approach of looking at how the financial portion of the business is being handled, and in that way, we contribute to this board as well (hopefully for the better). Both categories are frequently used independently to decide to take/exit/reduce a position, but you are absolutely correct that both are needed in conjuction to get a complete picture and risk profile of a potential/current investment. Micro-cap growth companies are interesting animals, that's for sure....
"By the way, I was just wondering if you currently have a position in GSPG or are you just interested in the company and the investment profile and strategies,comments being deployed by investors who post on this board?"
As I stated in an earlier post, I have maintained a position that I adjust (up and down) according to the ongoing changes that this company has according to my risk profile and calculations (all of which is re-evaluated with every filing/news release that comes out, as well as other info posted here and elsewhere). Since taking my initial position, I have never completely exited, though I would of course never rule it out as an option (I'm not married to my investments).
The size and timing (not that you were asking) of my position aren't important of course, since it is the relative size of that position to the total which matters. $10 invested in GSPG to a guy who has $20 total says much more about him and his opinions of GSPG than $10,000 invested in GSPG to a girl who has $1,000,000.
Thistime, thanks for the response. It seems that no matter what style of font is used (italics, bold, underline, ALL CAPS) to convey intent and emphasis, the tone of a post will always be augmented/distorted by the person reading it. So, I apologize if your first post wasn't as emotionally charged as I first assumed, but I'm sure you can understand why I have a desire to keep things as friendly as possible here with thoughtful discussions... I've seen the alternatives on other boards. You seem to have the same goal, which is appreciated.
I have absolutely read and understood where you were coming from on your points from your first email. In fact, the majority of "strengths" that you list are ones that I would consider to be strengths as well for GSPG. I have tried to stay as neutral and objective as possible in my posts, since my main goal is to learn why others buy or sell this stock.
I do not have any motives for swaying a person's opinion towards or against GSPG. I simply like to bring up points that need to be thoughtfully considered, and I prefer to get others' opinions on those points rather than inject my own. In fact, you'll notice that I rarely take a position on whether I agree or disagree with anything GSPG has done or is planning, but I will post my opinion on the potential pro's/con's and possible benefits/consequences of those actions.
I share your opinion that GSPG "is a bit of a gamble", and I'm sure on some level you share mine that based on their current financial situation and reliance on one angel investor (whom we have no idea how much more patience/liquidity this guy has to invest), GSPG management does not have much wiggle room for error or missteps.
Although they certainly seem to have answers for each reasonable investor concern, you must admit that the current situation warrants watchful attention and careful assessment by current/future investors. What does concern me to see from various posters is the suggestion that any due diligence done to this point is enough to "buy-in and throw away the key", and any further developments should not be met with fresh perspective and evaluation. If this were the case, then should investors even expect any additional news/filings from management, since they wouldn't be useful anyway? I'm not suggesting that you fall into this category, thistime, but those who do know exactly what and whom I'm talking about...
Thistime, first off, please relax. For the most part, everyone here (including you) has been behaving in a cordial manner, whether or not his/her opinions lean for or against GSPG as a prospective investment at this point in time. This is what is so refreshing about this board versus some others, and I'm sure everyone here (again, you included) would like for it to remain this way.
As I've said before, I find everyone's opinions very helpful (even if they go against my own) because those people are part of the investing public too. While it is useful to know why people are buying a stock, I would imagine that a current shareholder should be more interested in why people are selling a stock. In fact, if you've made the decision (using ongoing analysis and due diligence) to purchase shares and hold a long position, then the reasonings and thought-processes behind others' subsequent purchases of that stock are completely irrelevant to you, and you should assume that they are buying for the same reasons that you did. In other words, you shouldn't care why they are buying it, just as long as they are indeed buying it. This concept is called validation, which most find much comfort in.
Some folks do not interpret the exact same data you see in the exact same way you do. Data and company facts that you include in your "Strength" column very well may be included in someone else's "Weakness" column. For instance, "Investor A" may be thrilled that GSPG has shelved the mining production for now and is focusing all efforts on exploration, while this may make "Investor B" uncomfortable and hoping for a more consevative approach. Regardless, the point is that if you are long GSPG and more "Investor A's" are piling in and posting up a storm on I-Hub but the share price is still falling, who would you be most interested in posting next on I-Hub? Another "Investor A" or an "Investor B"? Do you really want/need more validation for why you purchased a stock, or would you like some insight into who is selling and why? Which information is really more useful to you?
"I am getting a bit sick and tired of all this technical book stuff being applied to this stock."
I feel where you're coming from on this, thistime, but the unfortunate truth here is that investing in common stock is a profession (although some would argue against the professionalism of some of the industry's participants). The vast majority of money that is traded in the markets on a daily basis is not individual investor funds in online brokerage accounts.
Institutional investors (whether managing money for pensions, mutual funds, sovereign funds, trusts and estate wealth, high-net worth investors, etc) by far account for the largest amount of money currently invested, and they all use the same basic techniques for valuation and analysis (though everyone interprets the results differently). These guys and gals swing with the largest bats out there, and when they take/exit/reduce a position, they move the market for that security pretty far. As such, they have to be absolutely positive and confident in their decisions because they can't just "buy it right back" or "sell it really quickly" if they guessed wrong. When speed and nimbleness are not on your side, then diligence and caution must be.
Like it or not, thistime, the real market movers of any given stock (including GSPG) are using the "technical book stuff" to make their investing decisions, and since they ultimately determine the rise and fall (success and death) of any given stock, then you might find it helpful to learn and embrace these techniques, if only to discover why others (perhaps with more market influence than yourself) are buying and selling your stock. Make no mistake, you and I (and any other individual investors) are basically along for the ride until you can (1) swing with a big enough bat to sustainably move a stock or (2) get into a position where your decisions directly affect the company (as a director, executive, or 5%+ investor).
"I challenge any of you,and NJ Portfolio Investor in particular,to show me that you or anyone else has a better vision and strategy for GSPG..."
That's "NJPortfolioManager", but I won't quibble on the details. As I've said before, my focus and expertise is in managing a portfolio of securities (about 380 of them now, to be clear), which involves constant review, analysis, and decision-making. I have to be confident in the decision to hold/adjust/eliminate/take positions in many different companies on a daily basis, and these companies are part of many different industry sectors. I cannot (and will not claim to be able to) develop an expertise in how to run any of these companies in any given industry. If I did, then I would be in that industry to capitalize and profit from my new-found expertise.
My job is to evaluate how a management team is running a company, and make hard decisions with other people's money on whether to place more/less/none of their money with that company. Nice guys or not, I don't have the luxury of taking a "buy and hope" position with a shiny-eyed executive team and board of directors with polished resumes. The numbers are all my clients are interested in, which means that I have to have the same focus as well. Anyone can invest with a company because they feel it in their bones that it's the right move, but that's not how I'm paid to invest (nor would I do so with my personal account). To borrow your analogy, I absolutely must see "the forest from the trees", and I have no qualms in pointing out a sick tree to keep a close watch on lest it bring down other trees around it.
Bottom line, there is no room for emotion when investing others' money, so why would an investor want to suddenly insert some emotion when investing his/her own? I strongly believe that if an investor becomes highly emotional on small swings of a stock they hold, then one of three things has occured: (1) he/she has taken too large of a position relative to the worth of his/her account, (2) he/she is not 100% convinced of the merits of the investment or has not developed an informed opinion of the reasonable current valuation ranges for the company based on mathematical principles, or (3) he/she is just an emotional person and can't help inserting emotion into their investing methods. Cases 1 and 2 are easily fixed by either reducing a position to a more comfortable level or learning proper valuation techniques which are used by the rest of the investing community, while case 3 is a strong argument for hiring someone else (either a financial planner, mutual funds manager, etc) to invest one's money. I'm not saying that any of these include you, thistime. I'm simply throwing out what I've seen and learned.
Any comments or critiques on this post are absolutely welcomed and encouraged.
smitty01, I can understand why someone holding GSPG back when it was a miner could be frustrated with the switch to explorer, especially if they weren't expecting it or worse yet, they still don't know that it happened (i.e. they still believe they own the same investment). Depending on how this switch is handled, there can certainly be some collateral damage to the shareholders as a company's share price adjusts to the new risk.
Transforming from a cash-generating machine to a cash-guzzling machine generally results in many things that you are upset about here: (1) loss of cash-flow, (2) dilution and balance sheet scariness as capital needs to be raised since they can't fund anymore from internal revenue, (3) the unfavorable terms of each funding round ("mafia" rates become necessary as risk increases, and non-revenue generating explorers have a lot of risk...), (4) uncertainty in operational results (every next-step is an unpredictable surprise), (5) etc, etc, etc. For someone whose original interest was to invest in a cash-generating machine, these are not attractive turns of events.
However, this transformation also results in: (1) a higher potential for explosive share-price growth, (2) sporadic opportunities of high-volume events which allow large shareholders to exit/reduce their positions in the open market, (3) use of options as compensation versus cash or outright share-giveaways (remember, an option is only attractive if there is enough volatility in a stock which pushes the share price away from the strike price, good or bad), (4) etc, etc, etc.
The point, smitty01, is that it can be a frustrating exercise to hold a growth-oriented explorer to the same valuation standards and characteristics as an income-oriented miner. As far as how well the company was run back when it was a mining operation, since it was unprofitable and plagued with "questionable ethics" from the previous management team, I'd say that the new GSPG management had a big choice to make, and they decided that a complete shift in focus was the best course of action.
At that moment, any stockholder who did not want to go along for the new ride as an explorer should have gotten off the train and bought into a different miner. Although we're already 2 years into the burn here on the new chapter of the GSPG story, any current shareholders who feel that the previous sentence includes them should re-evaluate the appropriateness of GSPG in their portfolio. That is of course until/if they begin mining again in 1Q/2Q 2009, at which point GSPG will become a hybrid miner-explorer as they produce from the first 100-hole drill program (Hartford complex) and begin drilling the other two 100-hole programs. At that moment, anyone who doesn't want to own a miner-explorer hybrid (maybe some folks prefer the unchecked upside potential of a pure explorer or the steady-eddie approach of a pure-miner) needs to again re-evaluate the appropriateness of GSPG in their portfolio.
Again, smitty01, I unfortunately cannot comment on some of your opinions as they relate to costs being unreasonably high or the speculation of what the "held-back" results are hiding (I'll leave those topics for others to post about). The argument could just as easily be made that they are aggregating the results together in order to release an enormously positive "Super-News Release", but that would also be unfounded speculation at this point.
What I am confident about is that this is a different beast from what it was two years ago (new management, new strategy and focus, new investors, etc), so I'm comfortable leaving those days out of my current analysis of this company. This is definitely "crunch time" for this management team, and by the looks of their financial statements they don't have a lot of room (if any) for errors or missteps. Based on the current economic state of the broader financial markets (lack of credit, movement to safer investments, etc), any rational investor should approach investments similar to GSPG with caution, a watchful eye to read between the lines of releases and filings, and an ability to separate one's emotions from their investments.
Remember, if GSPG succeeds or fails, you were only either a participant or not in that success or failure. In other words, in any case you were simply along for the ride. It does not mean that you personally succeeded or failed, unless of course you (1) work for the company as a decision-making executive (Faber and Golden), (2) control a meaningful amount of voting shares and company control (Winfield), or (3) did something foolish like invest your entire net worth into one company where you are not in category 1 or 2 and don't have any ability to control the ultimate destiny of the company.
Ha! Cutting Corners, I'm sure some would argue that I am being generous with my price of even two cents for my opinion. I guess I should feel lucky that it isn't publicly traded...
"You forgot to mention their past history of dilution which has gone on for years..."
The past history of dilution is indeed important to consider since it provides a window into management's appetite for expansionary capital, as well as the methods used to generate said capital. However, it is important to remember that the issuance of new stock to raise capital (although dilutive in technical terms) is not necessarily an automatic negative. If this newly created capital is successfully used to expand and grow the assets of the company beyond the cost of capital (whether measured by dilution for equity-based financing, or interest-paid for lending-based financing), then management made a good choice that positively affected all shareholders. The important concept to focus on is not whether or not they previously used equity-financing, but instead the focus should be on what they did with the proceeds and whether their return-on-investment was a success. If their track-record shows the latter, then they should wash-rinse-repeat as much as they can while it still yields the same results.
"... production which was shut down... "
This is a non-issue with this share price at the moment. The shut-down in production occurred almost two years ago, and this fact is very well-known (and therefore priced-into the share price) at this point among current/potential investors. Once this company shifted from being a revenue-generating mining company to a non-revenue-generating exploration company, the stock price adjusted accordingly, and shares changed hands from those folks who were looking to own a miner over to those folks who were looking to own an explorer. In a situation like this, I would expect share price to drop since (usually) explorers have a larger risk-discount applied to them than miners. I would further expect that the opposite phenomenon would occur once the company switches back from an explorer to a miner. If the decision to shut-down and focus on exploration turns out to be rewarding, then it should be included in the "success" column, not the "mistake" column. Of course, the opposite is true here as well.
"... and all of the attorney bills which we hope are done with."
Any additional attorney fees (as either a normal part of doing business in this field or for negative reasons such as litigation) have been addressed in the 10-Q on pg. 27:
"Item 1. Legal Proceedings
From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows."
"The drilling seems very expensive on a per hole basis. This is not deep drilling, it seems to be going slow...
From what I can gather, it seems that GSPG management estimates that each 100 hole drill-program costs $2 million (so $6 million total for the three planned 100-hole programs). I'm not knowledgable on how this estimate compares to other explorers, but maybe someone else on this board can provide input here? As far as how slow it is going, again I'm not sure what a normal speed for this is, but I was able to find in the 10-Q that GSPG has 89 holes drilled of the first 100-hole program, of which they've only reported the results of 56 of them to investors. So, this would suggest that even though assay results have not been as forthcoming as they have in the past, GSPG has indeed made significant drilling progress since their last update.
"... and at twice the going rate which to me probably spells kickback of some degree. Management or engineers are most likely getting a chunk of shareholders dollars under the table on this deal."
This is pure speculation and I have not seen any evidence supporting (or to be fair, refuting) this claim. As such, I have to assign it no weight when doing my analysis of GSPG.
"The costs are out of line for what they are doing there. "
Again, "reasonable operational costs of precious metal explorers" isn't my area of expertise, and as such, I don't have an informed opinion to post here. Can someone else on this board shed some light into Mr./Ms. Smitty01's opinion?
"No dilution coming, so it should keep moving up in step with gold." - bubbatuff
bubbatuff, I don't want to single you out here, but I'm not entirely convinced that the possibility of further dilution isn't in the near future. Since your opinion is likely shared by many on this board, I wanted to jump in with my two cents (which was worth 4 cents six months ago...).
Language to the contrary can be found in at least five different places in the 10-Q: (1) pg. 7 which directly states that the sale of additional stock is on the table as an option, (2) pgs. 11-13 about convertible debentures outstanding (the exercise of which leads to dilution), (3) pgs. 16-17 about warrants attached to shares and the use of options as compensation (again, the exercise of which leads to dilution), (4) pg. 19 referring to Winfield's ability to convert substantial debt into shares and the resulting potential conflicts of interest for current shareholders, and most importantly (5) pg. 25 which explains the "Liquidity and Capital Resources" situation of GSPG.
This isn't to say that near-term dilution on a mass scale is a foregone conclusion, nor does it necessarily mean that those who have the right to exerceise dilutive securities (convertible bondholders, option holders, warrant holders, etc) will do so. It is to say that this scenario is possible and shouldn't be carelessly left out of an analysis of GSPG as a current/potential investment.
Few (including management) can disagree that GSPG's financial position is certainly thin at the moment (like too little butter spread over too large a piece of toast), and I think that this filing did a good job of being as transparent about it as possible. Management's use of language like "if", "uncertain", "need" isn't always a situation where investors should look past it as simply a CYA ("cover-your-*ss") measure by the company to satisfy SEC and auditor compliance. Sometimes these types of statements really, truly are actual warnings of financial insecurity, so it is important to monitor your internal filter system to make sure that it isn't set to "No Problem-We're Invincible-Banish the Naysayers-Foward March".
I am absolutely not trying to discourage anyone from their current/potential interest in GSPG here, but I am discouraging the frequent (usually unintentional and subconcious) practice of cherry-picking good news from news releases and filings while dismissing the news that could/should cause concerned second-looks and further analysis.
Darbyflier, thanks for your response. I'm glad you find value in my posts, and I appreciate your posts as well.
This board is certainly not short on words of wisdom (or personality), and as far as integrity, I'll say that for the most part everyone stands by their statements and doesn't flip-flop often (unless convinced otherwise), which is good to see. This is definitely not a group of fence-sitters, that's for sure.
Everyone here seems to either have a well-formed opinion (based on many different techniques... technical analysis, fundamental analysis, direct relations w/ management, etc), or they are actively seeking to form one through thoughtful discussion, questions, and due diligence on this board. I may not (and don't) agree with everything said here, but there are other posts which do give me an "a-ha" moment once in a while (which I'll then include in the formation of my opinion).
Regardless, all of these posts are useful, even if only to help see what goes through other investors' minds as they make their investing decisions. Everyone here is having their own personal GSPG investing drama, which is being played out in public in written form. If they can analyze and realize what makes themselves and others react and invest the way they do (whether in a particular stock or in the broad market as a whole), they can use this info to their advantage (and to help their nerves and overall sanity when things change). Interesting stuff...
Thanks, Cutting Corners. I was never gone, I have been watching and reading, and of course, I've had my share of fires created by our friend The Market that have kept me busy over the past few weeks. I just didn't have anything worthwhile to say to add to the discussion (not uncommon for me). : )
Cutting Corners, you have a fairly complete list here! To start, you can break your list into two categories: (1) things you can control and (2) things you can't. Your items #1-3 fall into the "can control" category, and items #4 and especially #5 (ha!) fall into the "can't control". Of course it goes without saying (even though I'm now saying it) that GSPG could push some chips towards the "can control" items if there is a concern over short-term share price movement. If there is not a concern over short-term share price movement (present company excluded, of course), then a change of current plans is not warranted or advised.
Reasons why management's short-term share price concerns are sometimes valid include: (1) the company anticipates a near-term need to raise capital through share issuance (you want to issue the least # of shares per dollar needed), (2) a large investor acquired a sizable block of shares in a private placement and the company doesn't want them to get cold feet and dump on the market (or not participate in the next offering... small micro-caps don't have limitless deep-pocketed suitors, especially in this market environment), (3) a company doesn't want to have to give unfavorable terms in their next offering (shorter restriction period, more of a discount to current price, etc). Of course there are many other reasons (some personal, some company-specific), and there are just as many valid reasons why a management team would not be concerned about short-term share price (they're funding using debt rather than equity, cash-on-hand is adequate to get them to next stage, etc). One approach is not better than the other, it simply depends on the specific situation and current needs.
Specifically to your item #3, I would argue that the "43-101 reserves vs 43-101 resources reports" issue would have less impact at this point than many believe, since the core element (assets in the ground) would be the same between the two (especially considering GSPG used a fairly conservative cut-off on their original report). Another, more detailed, report that simply includes detailed mining plans of the same assets might not give as large of a boost to share price as some expect, unless of course it's issued with language of impending mining operation start-up or includes new (previously unannounced) ore deposits.
I anticipate that some will say that item #4 belongs in the "can control" category, but I don't think it fits. Drilling holes in the ground is a burn on time and resources until the results come out. If they're positive (great!), the gamble paid off and it was an effective use of current resources. If not, then it simply remains what it originally was, a time and resources burn. You can make an educated guess (based on previous drilling, ore mapping, etc) on drilling outcomes, but the final results are beyond control (just ask the hundreds of frustrated gold miners from history who hit repeated "dry holes" only to see their immediate neighbor strike pay-dirt).
If a company chooses to push all of its chips on "can't control" (as in choosing to going after the two birds in the bush... hoping that there are actually 10 birds in the bush once they peek in), then their stock should absolutely price in the higher risk of failure. It seems that most folks would prefer that the stock would price in the higher potential instead, but in a risk-averse environment (which I'd say we're clearly in at the moment), a lot of investors are instead rewarding a share-price premium to the companies who choose to focus on the bird in the hand.
darbyflier, thanks for the note, and I'm glad my contributions to this board have been helpful. Like I said before, it's also very helpful to me to write my thoughts, since it helps me to organize them and think clearly through my investment rationale for a particular company. I'm also intrigued by the technical analysis that you guys/gals (yourself, RBKissMyAs, etc) work through on this board, since in theory the volume of price "support" at each level could help to identify a point where people are pricing (even subconsciously) their risk-discount.
In other words (and I'm making this up now), "I'm going to buy some more only if it comes back to the previous support level of $0.025/share" shows that regardless of long-term prospects, this investor has a threshold of a risk-discount that must be priced in before they're willing to buy (even if it's just price/volume/volatility risk for traders rather than fundamental risks for investors). Interesting stuff...
thistime, thanks for the reply. As far as my background, I indeed work as a portfolio manager for an investment firm in NJ, but as I've alluded to before, the asset-class I manage does not include precious metals, small mining companies, or micro-cap explorers (otherwise my sketchy calculations and half-cocked analysis with GSPG would be much better...). However, I firmly believe (everything is theory here, folks) that the basic principles involved in managing a portfolio of stocks in any asset-class involves a careful understanding of the relationship between the risk/reward "tug-of-war" with share prices.
Without going into personal details here, I will say that I have invested in (and trimmed) GSPG at various prices that I consider to be appropriate given my internal risk-discount and changing conditions/strategy, and as things continue to change, I will continue to adjust and refine my position based on changes in that risk (using the strategies I've outlined in previous posts).
"Of more importance is getting a lot of your comments to Management. IMO, in some cases you are speaking to investors that intuitively share your thought processes,in many other cases this is fairly new to investors and it is all good. But,again,you need to consider informing Rob Faber of some of this,especially what you are saying about changing strategies.
Thanks for the compliments and vote of confidence. It seems that many here and on other message boards have developed a professional/shareholder-management relationship with some GSPG executives. I'm glad management is willing to include shareholder input, and of course, if anyone with that type of relationship would like to forward my posts on risk management along, please feel free to do so. I certainly hope that none of it would be a big surprise to them, but sometimes people just need to hear something they already know said in a different way to make it click in their head.
On a personal and professional investment level, I am responsible for actively reviewing and adjusting positions in over 200 companies' stock, so unfortunately I don't have the luxury/time/inclination of getting that in-depth with any of these companies. Besides, my job as a professional investor (and yours and mine as personal investors for our own accounts) is to allocate capital amongst competent management teams, not to overly involve ourselves in their affairs. At the end of the day, they must be confident in their own decisions (or they will fail), without too much outside input clouding their judgement. I follow the principles of: Vote with your capital, and don't let investments become personal.
Thanks for the interview link, which I'll certainly listen to. I appreciate it, and again, thanks for the reply.
Stocktrader1, Cutting Corners, and thistime, everything is always up for renegotiation and change. Business plans are written given environment conditions at the moment in writing, and any management worth their salt (or weight in gold... sorry) will remain nimble and flexible to change if situations warrant.
Case in point, GSPG's original plan was to finish the 100-hole drill program by early summer (which they did, on schedule), initiate another modest drill program (which they instead ramped up to an aggressive drill program), and begin small-scale mining production on the known deposits (which they scrapped/postponed in order to focus all of their time/attention/energies on changing the next drill program from modest to aggressive).
This is a great example of being flexible with your plans when other circumstances/opportunities/problems arise. In this case, GSPG has said that based on the data from their 100-hole drill program, they believed they had found the beginning of a much bigger ore vein than originally expected. Remember, time/attention/capital are finite (as opposed to infinite), so the goal (and main job) of management is to pick the best use of those finite resources given ever-changing data and circumstances. I suspect that GSPG management compared the potential benefits of their original plan against the potential benefits of an alternative plan, and based on the investment yield numbers, chose the alternative. There's absolutely nothing wrong with that... you have to pick one or the other. Picking "other" is simply a change in strategy, which at the very least proves they are flexible. If things change again, which they will, the new numbers and data might point to them resuming mining before their most recently announced plans.
What this means is that investors who bought-in or were thinking of buying-in based on the original plan clearly changed their minds after the plan changed at the San Francisco conference. No problem, they just realized that either (a) they wanted out because this wasn't the type of investment they were looking for (they were looking for a small miner/explorer hybrid), (b) they feared any deviation from a previously announced plan (these people can't be helped... they just fear change), or (c) they realized they paid a premium for their shares when they first purchased them (since they were originally priced based on a miner/explorer hybrid) so they sold them now at a profit to buy them back later at a price-point that they felt was more appropriate given the new risk discount. Option "c" folks are typically those who don't let change rattle them, they simply react and adjust accordingly.
Please read everything below very carefully
The only thing GSPG can do to increase or reduce the discount applied to their assets (thereby raising or lowering the share price) is to increase or reduce their risk. That does not mean that they should immediately scale back risk just to get a nice short-term increase in share price because this would also cap their long-term growth potential, as JER01 stated previously. They only need to focus on their long-term goals and adjust their risk to make sure they survive long enough to be able to meet those goals. Any more or less risk assumed than is necessary runs the risk of financial ruin or coming up short on their goals.
However, if GSPG management's goal is to reduce volatility in their stock (which I think is most people's main problem here), then they need to gradually make and announce big changes in strategy rather than allow their stock to fully price-in one business plan only to drastically change the game in a 20-minute conference call (even if everyone agrees that its great news and a good strategy).
Keep the shareholders informed that you're considering other alternatives as you're considering changing them, and you'll notice a major reduction in the volatility of your stock. Bad news will still make it drop and good news will make it climb, but ongoing communication about possible changes in strategy will help to smooth everything out a bit. Why do you think that major public companies give "analyst guidance" when financial numbers or major shifts in strategy look like they could possibly change or be different than expectations? They know that investors don't like surprises of this nature, and they also know that if they spook the investing public by not easing them into big changes, they'll see a lot of short-term volatility in their stock (which sometimes creates a dominoe effect that leads to temporary, but frustrating, over-sold conditions).
All comments and critiques are welcome and strongly encouraged.
JER01, you make an excellent point, as well as bring another perspective of valuation. However, I think you might be leaving out some other factors, or maybe you're assuming an "everything else being equal" scenario.
For instance, what about the rate of recovery? Just like $1 received 5 years out is worth less than $1 received next year, I'd imagine that two mining firms with the exact same reserves numbers but recovering them at two different rates would be valued differently. A quicker recovery should equate to a higher present value of assets, correct?
Also, what about debt factors? If one firm is highly leveraged and the other is not, shareholder's equity is much different between the two, no? Even debt payment terms factor in, like if one firm has lower payments from negotiating a longer amortization, then their free cash flow allows them to be more flexible... there's value in that.
Also, what about cost of recovery? If firm A has X ounces-gold at a depth of 5'-25' located along a major highway, and firm B also has X ounce-gold but at a depth of 500'-1,000' depth and located far away from civilized infrastructure, whose cost to recover the same asset base is higher, you know?
For that matter, what about if firm A with X assets is located in Saskatchewan, Canada where the royalties and taxes are different than for firm B with the same X assets in Comstock, Nevada. Those assets will be valued much differently since the cost of recovery, regardless of the mining company's efficiencies and methods, is different.
Calculating a ratio (like price/book, price/sales, price/earnings, etc) can help to form a complete opinion on where a stock could be valued given changes in variables, but only using one ratio erroneously assumes "everything being equal", which it never is. I'd be surprised to see very many close similarities between GSPG and AUY (although admittedly I haven't looked) that would allow us to use only one or two factors of comparison other than they are going after the same commodity, in the same industry, with similar equipment.
"Let's look at your consensus price numbers: .05 to .15."
Now wait, when I said "consensus", it meant that I have noticed that most posts on this board have been saying that GSPG's assets (whether a discount is applied or not, based on individual posters' preference) should be valued in that range, and my argument was that if any number in between this range were correct, GSPG would have less of a discount applied to those assets in a productive mining scenario (although they'd then slow growth considerably as you mentioned, if not semi-permanently... making many on this board very unhappy).
I don't think they are necessarily "reluctant to restart production", rather I assume that a competant management team would weigh the options, potential risks, and rewards to make that decision. In other words, they took the internal rate of return (or investment yield, or whatever you want to say) of all possible projects and took the one which made the most sense from a risk-adjusted basis. Hopefully that's what they did, at least.
ThSeeker, I think you are right on with your phrasing of some very important questions, and fortunately what you believe can be put into play by taking or not taking a position with the company. At the end of the day, the management is really what you're buying here because the assets (gold and silver) have always been in the ground under the custody of countless other management/investor teams (as is evident by all of the Comstock stories going back for over a century).
To be clear, I am naturally inclined to weigh the relationship between risk and reward together, since I firmly believe you cannot have one without the other. I posted my last few messages with the purpose of starting a dialogue about why the share price has fallen from a risk/reward perspective, since the "conspiring market makers", "paid pumpers and bashers", and "pesky naked-shorting Germans" folks have received ample representation and air-time here (as they should, since any of our theories could be correct). I am absolutely NOT trying to instill doubt or fear into anyone's investment decision, and in fact, I just think it's helpful for me to think rationally through my own investment rationales when I write/type them out. It's a helpful way to work through something I ultimately can't control: the share price.
JER01, nice article, and I agree that it helps to highlight how risk is factored into share price, regardless of the current price of gold or the amount of reserves. The mere fact that companies in identical industries, mining relatively identical metals, but under completely different scenarios/situations goes to show that the defining factors in share price relative to how others are valued depends much less on simply the current market value of the discovered resources.
"The proper valuation for GSPG is a tough one for me. I don't think we want to own it for its current resources or even a doubling of those resources. The attraction for me was/is in the potential for a really big find."
Actually, there's a good probability that if GSPG were to stop all exploration right this second and focus 100% of their efforts and remaining capital on mining the currently known resources (we'll call this the "Micro-Miner" scenario), the share price would absolutely climb much closer to the numbers thrown around on this board on what GSPG should be worth right now ($0.05-$0.15 seems to be the consensus price spread). The reason/theory is that a large amount of the risks (running out of cash, lack of funding alternatives, etc) would start to ease out. As GSPG began to clear up their financial position (paying off Winfield's non-traditional and expensive financing, retiring shares outstanding, etc) with the production proceeds, the pricing of this stock would essentially shift to a discounted cash-flow model. Then the price of the underlying commodity (gold) would absolutely be a main driving factor of share price.
However, I don't think $0.05-$0.15/share is really the reason why investors (which includes Faber/Golden/Winfield) have bet on GSPG. No, I think they're looking for much more than that as a return on their investment, regardless of whether they bought in at $0.005 or $0.065. So, if the goal is to achieve much greater than $0.05-$0.15 (and it seems like most people are having visions of $1+), then GSPG has to leverage itself and its assets to shoot beyond (we'll call this the "Shoot-The-Moon" scenario).
This obviously increases the risk, so new investors trying to buy into this story need to be compensated for that in the form of increased potential return. Why would you ask new investors to pay "Micro-Miner" prices (which has a low risk of losing all the investment, a lower but steady and predictable return, and therefore a higher buy-in cost per share which is closer to market value of assets) when what they're really buying is a "Shoot-The-Moon" company (which has a much higher risk of going bust, a much higher potential of going to $1, so therefore a much lower buy-in price that deeply discounts the assets)?
Why do investors expect that the moment they purchased their shares at a risk-discount, the risk has gone and it should trade at a much safer premium? If nothing fundamentally has changed (except a few more ounces-gold discovered) just after a person hits the purchase button on their online stock account, they can't expect for others to not get in on the same deal at the same price per share (or lower, if the risk is ramped up).
News that is exciting to some (like "we're pushing back production because we think we've found The Big One", "we're spending our available cash on more historically profitable mines", or "we've been able to defer our currently owed debt and we've secured more of it") is very risky to others. Not everyone views "investment management" as a synonym for "speculation". Some view "investment management" as a synonym for "risk management", and under no circumstances are they going to raise the price they'll pay for an investment when news of more risk comes out. To some, this kind of thinking is lunacy.
"The big question to me is whether the current management can find it before their cash & ability to fund additional cash drys up."
I've got news for you JER01, you're not the only one who sees that as "The Big Question". Some consider it to be "The Only Question". Clearly others have assigned that question a risk discount, which is reflected in share price. As that question gets answered (good or bad), the unknown risk will become known reality, and the price per share will reflect it (good or bad). But that won't happen based on "don't worry, we've got it covered" type of statements.
I don't know the right answer about whether GSPG should start mining before they have stated. In fact, it doesn't matter. The absolute #1 priority above all else is that they survive. If they can survive long enough to meaningfully pay down their debt and recover the value from their assets (either from a sell-out to a major or mining it themselves), then it shouldn't really matter how they get there. Keeping the pedal to the floor will get them there faster with a larger payoff if they survive. If not, none of the prolific stories of the History of the Comstock will become reality for GSPG investors, just like they didn't for the many people who had claim to this land before GSPG came along. I'd imagine that those investors told the same exact stories and had just as bold of management teams, but it's the ones who properly manage the risks in order to survive long enough for a payoff that will win.
Thistime, thanks for the conference call info. I'm on the east coast, so the timing is definitely approaching my usual bedtime (7:15pm is 10:15pm for us in the Northeast), but I'll make an effort to dial in and listen.
Thank you to the organizer of it, and if for some reason I can't listen, I hope someone will post some follow-up commentary to this board.
thistime, sure thing, but I make it a point to not post my email address (work or personal) on a public forum. If you have no such qualms, then please feel free to post your email here and I will send you a reply from my personal email account.
Cutting Corners, Ha! Thanks for the nice "Cliff's Notes" version! "Mine while you drill" could certainly help to push share price closer towards asset value and untap cheaper financing (assuming these are important concerns in the short-term).
Thistime, thanks for the response. You put together an interesting cross-section of how other major miners are valued, which goes to show how share price will more closely reflect asset values as a company "extends its roots" and becomes more stable/predictable.
ThSeeker, You're right about it helping to keep runaway optimism "in-check" and focus on what GSPG needs to do if they'd prefer their shares to be priced the way the majors (or even minor miners) are in thistime's post. However, it's also very helpful in keeping your depression "in-check" when you realize that a falling share price after a company announces a ramp-up in risk (like pushing back mining production plans in favor of further delineating an ore body) is perfectly natural and normal.
Cutting Corners, thanks for your response and the compliment. I was hoping golf was a well-known enough topic that folks got the analogy I was trying to make.
ThSeeker, I agree with you that if/when mining restarts, the proper method of valuation should shift away from simply being discounted assets. You're correct that a large portion of the valuation will be discounted earnings on the ore body being mined, but it will still include a discounted asset component on the sections of property that have discovered resources but aren't in production. I also think you're right on with the additional shift in valuation back to a pure discount of assets once serious buyout talks/rumors/offers start taking over.
"No matter what we should see PPS rise over time pre production from these levels."
I agree with this, only if GSPG can get ahold of some of the underlying investor worries I stated earlier.
I think that the main complaint of most here on this board is that they believe GSPG is deeply undervalued based on their calculations of what they've discovered. My argument is that many just don't realize that currently GSPG has a deep "uncertainty" discount being applied. The problem is that risk must be backed-out by applying a discount rate which prices the uncertainty of whether GSPG will actually be able to realize the final value of their assets. Whatever price you paid for your shares, whether higher or lower than today's price, it is possible to calculate the implied risk discount you required/accepted in order to buy your shares (unless of course you are trading for short-term profit).
For instance, let's say we all agree that based on our own calculations (taking into account discounts for either the time spent to produce or as a lump sum buyout from a major) that the fair value of all of GSPG's assets is X. So, the value of each share should be X divided by the shares outstanding, right? Wrong.
What if GSPG's creditors didn't magically extend the terms of their contracts with GSPG, which we've all taken for granted recently? What if Winfield suddenly became tapped-out of cash because of other business deals and couldn't provide additional angel-investor funding to GSPG? Where would GSPG get additional financing since they don't have a proven ongoing source of repayment?
The answer to these questions is that the creditors (of which our friend Winfield is one) would hold GSPG in default and seize all of the assets to sell in order to recoup all/some of their cost. These types of sales are not nice and orderly, and they usually result in deep discounts on the assets sold. In fact, it wouldn't surprise me if GSPG was the benefactor of a few such "fire sales". Whatever is left over after the creditors have taken their cut is for the shareholders. So, whatever portion of X was left over could then be divided by the number of shares outstanding to get a share price. Obviously this number would be much lower than the other method of calculation.
There is a saying, "For everyone who thinks that they own their home free and clear, just stop paying your property taxes, and you'll see who has first dibs." The point is that when accounting firms issue statements in annual reports about their uncertainty that the company can continue as a "going concern", not everyone just glosses over and ignores it like many high-risk speculative investors tend to do. Creditors (current and potential) are very interested in this... in fact it's the only thing they're interested in (unless like Winfield they also have some conversion-to-stock provisions).
Right now, GSPG's management is making a choice to keep the pedal to the floor, even while the gas tank is getting quite low (sometimes almost on fumes), by using their capital in continuing their cash-burning exploration strategy instead of starting to mine. There is absolutely nothing wrong with this unless investors (stock and debt) aren't compensated with extra potential reward for taking the extra risk as well. For lenders, this comes in the form of upfront fees, higher interest rates, stricter terms, assets pledged as collateral, etc. For stock investors, this comes in the form of a larger discount rate applied to the known assets... which means they want to pay a lower price per share (or seen another way, they want more shares for the dollar amount they're willing to invest) to compensate them for the risk they're taking.
So, the less risk involved, the closer the share price will be to its actual discounted value (re-read my previous post for an analogy to this). The same holds true for lenders, the less risk involved, the lower the interest rate required and fees charged to make the loan (and the cheaper the financing for the borrower... GSPG in this case).
So if GSPG is looking for cheaper financing and a share price which is closer to asset value, then they need to scale back the risk in their operations. But, if an investor is convinced that they are going to perform phenomenally in the long-term regardless of risk factors at the moment, then he/she should be glad that they are taking so much risk because he/she gets shares much cheaper since others aren't so sure of things.
All comments and critiques welcome.
I would somewhat agree with ThSeeker here that the 43-101 reserves report would help to futher clarify the data, which can then be used to calculate tighter numbers to come up with a valuation for this company. The problem is that a 43-101 reserves report is still simply a gameplan of "what I would do, if I were to do it". The investing community is more of a "show-me" group and puts quite a bit more share price premium on a company which is proving the numbers by execution.
For instance, I could tell you that I'm a perfectly capable golfer (which I'm not). I could then tell you that I have put out an official report that says I can shoot five-over-par on a famous 18-hole course (not a new one... many others have played there before, and I already know their scores and challenges on each hole) based on my expensive helicopter fly-over analysis of the course, the high quality of my golf clubs, the well-known expertise of my caddy and golf coach, the distance of my practice shots at the driving range, and the accuracy of my chipping and putting on the practice green.
How much confidence do you have that I can perform exactly as I predict on this 18-hole round? Are you willing to bet money? If so, how much? Better yet, what type of odds (otherwise known as potential reward for your risk) would you require in order to make such a long-shot bet?
Now, what if your friend told you that he had bet money on me playing this course many times in the past, and I have always come within + or - 1 stoke of my goal on this course? What if I told you that I'd let you watch me play one round on this course before placing your bet on the next round? Would that change the amount of money you're willing to bet? Would that also dramatically change the odds required to convince you to place the bet? In other words, wouldn't the risk of this bet go way down, which means most of the upside potential profits from the "blind bet" would already have to be priced in?
I, like many others in the investing community, award much more premium (in the form of either additional capital or price/share paid) on positive past results and current "prove-it" action rather than on well-laid plans, good intentions, and "maybees, mights, and anticipates".
Let me be clear, I am absolutely not saying that until GSPG begins mining, this isn't a good investment. In fact, I believe the exact opposite, which is to say that GSPG appears to have the potential of a great shorter-term and a phenomenal longer-term investment. The keyword here is potential. Every time more good news come out, potential moves closer to actual. The big question (and drag on share price, in my opinion) is not whether GSPG's "helicopter fly-overs and expert caddies" can put together a good plan and find the best routes on each hole, but it's how well can they actually play the round?
In my opinion, if GSPG wants to be further compensated in the form of share price appreciation for their assets, they need to systematically begin allaying concerns (through action, not statements of "don't worry, we've got that covered") about: (1) ongoing financing and the continued availability of funding (if they had revenue, other sources of funding would open up... and they could partially self-fund), (2) their ability to actually get the metal out of the ground in an efficient manner, especially since they can't guarantee when/if a major will buy them out, and (3) when/how they plan to begin paying down the outstanding debt to Winfield and cleaning up the messy financials (number of shares outstanding, difficult to navigate and expensive debt structure, etc).
All comments and critiques are welcome.
Thanks, thistime. I will certainly consider doing so (either sending questions or listening in on the call), and I appreciate the information.
"I think you are over reacting by your comparisons."
My comparisons between Lehman/Fannie/Freddie scenario and that of GSPG? I agree, I am reaching quite a bit to say a small mining company in NV and formerly major financial players have the same situations. I am simply showing how confidence that things will continue the same as before (i.e. Winfield will always meet GSPG's new funding needs with open arms, or that he is immune to GSPG's lack of ongoing cash-flow) can be very dangerous.
"Why do you not get on the phone to Faber and even Winfield to soothe your fears?"
Again, although I'm sure they are perfectly nice individuals to talk with on the phone and very capable business men, they have already stated their positions publicly and I mine. I have no illusions (nor the expertise in mining) to think that my placing a phone call will result in operational or business plan changes (unless of course I had a 5%+ position in the company... which I don't), and my concerns are probably very similar to others, so I wouldn't imagine I'd be telling them anything new or enlightening. Again, my concerns are formed and soothed based on action and results, not conversation and best-laid-plans.
"Alternatively what is your plan to bring your concerns to management's attention? Do you plan a coference call,site visit or what?"
I have no plan here. Again, I believe my concerns are very well-known to management and funders, since I'm convinced that on some level they are shared by others. This is validated by them being stated repeatedly by other posters on this and other boards over a very long time-span. Conference calls and site visits give the company great exposure and show that they are willing to be transparent, and I hope they continue with GSPG. But again, changing or repeating the method (be it PR's, conference calls, barbecues, etc) of saying the same basic plan doesn't eliminate all concern (just like I believe shouting or posting an entire message IN ALL CAPS doesn't get the point across more effectively). Please keep in mind, I don't think it's possible to eliminate all concern anyway, otherwise this would be considered a riskless investment (which it's clearly not).
"I assume you will be at the mine site on Oct. 11th."
No, I will not be at there. If I started scheduling myself to attend every conference, shareholder meeting, and site visit for every company I hold a position in, I would not be called NJPortfolioManager... I'd be USATravelAroundToVisitMyInvestmentsGuy. No, since I suspect that my concerns are rather basic and wide-spread, they are either fully known by management and/or will be brought up at the meeting without me attending. In fact, I'm counting on it and looking forward to those people posting here.
Thanks again for you responses, thistime, because I think you're bringing up good points to counter mine, which is always needed (and appropriate) as a sort of "devil's advocate" here.
Thanks for the response. I also think that it is prudent to remember that Winfield is not a limitless cash-cow. Just like many other major individual investors and institutional players, the current market situation has put a squeeze on a lot of people's liquidity (not to mention the fact that their illiquid assets have also fallen in value).
If faced with a cash shortage (and this is all speculation, since I don't know Winfield's financial position... but you have to plan for the worst), I seriously doubt that Winfield would have a market for someone to buy his GSPG debt from him. This would only leave him with one of two options: (1) convert his debt into equity shares based on the contract and sell them in the open market (horrible for the share price), or (2) put GSPG into default to seize and sell the assets (also horrible for the share price).
Just like many people advocate diversification of stock holdings, it's also important for GSPG to diversify their sources of funding (to avoid a situation like that above). Unfortunately, most banks and institutions (who are getting very picky with their new loans) won't lend without seeing some form/ability to repay (cash-flow is king, in this case).
I understand your point ThSeeker, but with all due respect, investor's cannot push their own concerns aside based on management's or major funder's lack of concern.
It is this same hubris within management that led to Lehamn's CEO doing too-little, too-late to save Lehman Brother's. For months beforehand, Lehman's CEO continually stated that they were in a fine position liquidity-wise (same issue and same position GSPG has taken), only to file for bankruptcy shortly thereafter (which wiped the equity holders out...).
It is also this same hubris with the major funders of Fannie and Freddie (leading them to lend at rates below prudent risk levels) which led to major concern and threats of default, forcing the gov't to step in (and again, wipe out the equity holders...).
My concerns are never soothed by talk and dismissal of valid issues by management. I look for action or change in circumstance to satiate my concerns...
Wow, there has been some pretty interesting events, theories, price movements, and topics of discussion with GSPG over this past week! First off, I have noticed that the conversation tone of this board has started to turn negative in lock-step with the fall in share price. Previously one of the best things about the posting on this board (as opposed to others) is that it has avoided the usual accusations of alterior motives, name-calling, doubt-casting, and insults that seem to infect most other boards. I really hope that this isn't a trend that continues, much less one that actually takes root and stays...
So, back on topic, I agree with some of the others on this board (sakomoney, for instance) that one of the largest causes of uncertainty at the moment deals with funding. However, after re-reading the PR that sakomoney posted, it doesn't seem to me that they are saying that are fully funded for the next 2-5 years, but instead it just appears that they renegotiated existing debt for a term between 2-5 years. Usually this means either they've (1) deferred interest and principle past due, (2) simply extended the period over which the amortized payments are calculated (if it is an amortizing loan), and/or (3) pushed the final balance balloon date back 2-5 years (for either interest-only or non-fully-amortizing loans). In all of these cases, this helps to strengthen GSPG's financial situation by easing the debt burden on their income statement (but not the liabilities section on the balance sheet), but it certainly doesn't mean that they've increased their (non-existent) revenue section of the income statement nor increase the assets side of the balance sheet.
No, make no mistake that there is still quite a bit of uncertainty surrounding GSPG's ongoing funding. To look at it objectively, investors are probably (and with good cause) nervous that the current breadth of GSPG's options for ongoing funding really start and stop with Winfield. And let's be perfectly honest here, Winfield's version of funding is very expensive since it comes with high interest rates and lots of equity conversion stipulations (dilutive), as it should be to compensate Winfield for the high level of risk he's assuming. The good news is that he's also a major shareholder, so he will probably be somewhat friendly in his enforcement of the debt. But keep this in mind, at the end of the day Winfield is still a debt holder which means that if GSPG doesn't start production soon and begin to repay his (and others') debt, he has first rights to claim default and begin selling off all the property and equipment to recoup his investment.
This is the crux of the nervousness with GSPG investors is that there is a tenuous position as a shareholder that at any moment their equity position could be wiped out if GSPG was put into default. In my opinion (and that of others, like CuttingCorners and Tekoah19), the best way to remedy this is to begin small scale production on some of their property in order to start-up a cash-flow machine, which will (1) prove viability of production on the property (bonus to share price), (2) enable GSPG to make payments on their debt using cash-flow instead of declining bank balance from previous loan proceeds (bonus to share price), and (3) possibly begin to accumulate cash which would allow the company to buy back shares in the open market when situations arise like that we've seen the past few days (bonus to share price). To StockFactory's point, when large blocks go up for sale on the market, who has the muscle and large enough bat to take a swing at buying such a large position, even if everyone can agree that it is a steal at that price? This is exactly the time when a company can (and should) step in to create the buy-side of the market to not only support share price, but also to start retiring some of our enormous amount of shares outstanding.
LikeToTravel, you and others on this board need to make a distinction between mining costs and operational costs, especially in regards to the role GSPG's silver plays in it. Mining costs are currently estimated to be $350-$400 per ounce-gold to set up shop, get it out of the ground, and get it to market. This is confirmed through reading many industry articles on the topic, and GSPG management has stated this to be the case multiple times (including the most recent conference). The silver that GSPG mines will not fully cover this $350-$400 per ounce cost, but it will cover the day-to-day wages, gas for trucks, and other incidental daily costs of operations going forward after production is started. Basically this means that silver will allow GSPG to be much closer to the $350 number than the $400 number, and if silver prices largely increase, this cost will come down even further (putting GSPG at a competitive advantage to other miners who don't have this special situation).
In conclusion ( and I apologize for the length of this post), GSPG should strongly consider starting up production immediately on the assets they have discovered. Rather than sit on it in fear that they are depleting part of the package they feel they are putting together for someone else to mine, they should again realize that this is only 1-2% of their property. If they want to survive long enough to drill the other 98%, they would be wise to start-up a "cash machine" to exploit what they've got right now... especially while gold prices look good and they have enough money in the bank to do it (if Winfield dries up or gets tired of waiting, the game's over).
soyelpato,
Nice to hear that the plant and equipment are owned. If I knew absolutely anything about the values of such equipment, I would add it to my valuation. Although I guess at 3 billion+ shares outstanding, that would have to be divided pretty small. But from what I hear plants/materials/steel/supplies are in short supply (and high cost) in the industry at the moment, so you are probably right on that its worth good money.
I think I remember reading somewhere on this board that you took a trip down (or up or over... I don't know where you live) to the operations. Nice work... like a true analyst. You aren't a ex-Bear Stearns guy/gal with some newly found extra time on your hands, are you?
ThSeeker,
First, as StockDawg pointed out, GSPG is actually traded on the OTCBB, not the Pink Sheets. For those reading who aren't aware, this is an important distinction since it shows their committment to file with the SEC and stay current in keeping investors informed. But more to your point, you're correct that very small companies like GSPG can have a difficult time "keeping their gains" after news-based ramp-ups. If you want to be on the safe side, you can always sell a portion of your position after a news announcement, which is obviously very common since "sell on the news" is a self-fulfilling phenomenon. These are the "you never go broke taking a profit" folks, and I certainly don't fault them for that logic. Like you, I won't be surpised to see a run-up to Tuesday and a slight pull-back afterwards.
As far as resources vs reserves, I was also originally under the impression (from the conference call) that we would be getting the reserves report, but somewhere along the way I noticed that they switched their PR language to resources. It is what's in writing that counts, so I would imagine that everyone is now on the same page and waiting on the resource report, not reserves.
To be fair, they are using a cut-off grade number for this resources report that is fairly conservative, so I wouldn't imagine that the reserves report for this section of their property would be too far off the mark. Also, to develop a reserves report, I'd imagine that they'd also have to do a lot of feasibility studies and technology try-outs to confirm recoverability, and at this point, I'd rather they focus their time/money on mapping the remaining 90% of the land. I'll take 43-101 resource reports on 100% of their land anyday versus time-consuming (and double the effort working through the same set of drill results) 43-101 reserve reports on 25%-50%.
My opinion is that GSPG is simply trying to put together a fully-explored "land package" (to borrow a phrase from the conference call) to sell to a major, and that major will have their own methods of feasibility and technology to determine recoverability numbers. I'd imagine that they would prefer the raw data on the ore in the ground instead of the "operations plan" of a small mining company.
Good point soyelpato, gold's "breakover" certainly coincides with GSPG's pull back, and it's very probable that it was a big technical factor. Couple that with the fact that weakness began appearing towards the end of August as we got closer to the "Uh oh, the 43-101 isn't coming out this month like they hinted on the conference call... Where is it!?!" reactions from the more emotional folks. I think that the truth is most likely a combination of your pegged-to-gold theory, chartist factors from the technical guys, and my opinion on the fundamental/news issues, since it takes all types and ranges of investors (with differing focuses) to make a market in a stock.
As far as my valuation is concerned, I recognize that many (most) people hope that I'm way under-aiming on this one, especially those that got in over $0.05. Please remember, my number is only based on the value-after-cost of the currently known ore reserves. You are 100% correct that there is inherent value in things like "surrounding itself with experts and seating a board", "a fully functional processing plant and... more toys" (although I suspect some of this is leased) and "laying the ground work to relocate 342...permits in place". All of this together is what I'm calling the story which as I said from my previous post would need to be sold to the investing community in order to unlock your topics' values in the form of share price appreciation over $0.10 (which I absolutely think is possible).
But until that happens, I don't think The Street is pricing any of it in, and I cannot include them all in my current valuation. Once the story starts to be digested and believed, then it can be priced in. All of these conference calls, investor conferences, regular and conservative PR's, and independent analyst reports (even if GSPG pays for them) go a long way to help.
The 43-101 report's biggest contribution next Tuesday isn't the numbers contained within (we already know those), but it is simply its existence in hard-copy form that gives credibility to management. Trust from institutional investors is earned, and as GSPG's management can continue to deliver on their promises and timelines, it will be given to them (and the shareholders) in the form of added capital. You have to remember, there is a big difference between how sure you have to be when you're investing other people's money (which institutional players do) and your own (which is the rest of the investing public). Institutional folks' careers, reputations, and paychecks depend on them getting their due diligence right (so they're very careful), and since they're swinging with such a big bat ($millions versus $thousands) it takes some stroking and convincing to get them on the band-wagon.
Jelly Donut,
I agree with you on this. Unless there is a dramatic surprise in the numbers, I wouldn't imagine the 43-101 by itself will drive this too much further. In fact, why would it, if you think about it? They have already announced the results from the remaining 19 holes from the first program of 57, so all of information in the report is already known at this point. To Cutting Corners point, if incoming news is already known (or "so-so" as he called it), then simply putting it into a different printed format shouldn't change things.
However, I do believe that the recent pullback was over-done a bit, since my personal fair valuation puts this stock in the $0.045-$0.05 range based on current reserves. From a fundamental perspective, the past few weeks drop in price could be blamed on "uncertainty" that has come along with not knowing when/if the report was coming out. If everyone on this and other message boards is asking, "Didn't they say in the conference call that it would be out by August... But then some PR's and SEC filings said by the end of 3Q... So did they really mean August or Septmeber?" then you can bet that the investing public was wondering the same thing. In my opinion, simple uncertainty discounted this stock below a fair value.
I believe that GSPG management thought the same way, since they saw fit to let everyone know in advance that the report is done and will be presented shortly. Normal procedures would have required that they file the report the same day as presentation, but I think they wanted to slow/stop the losses ASAP before moving into the conference, so they squashed the "fear of the unknown".
My hope is that the release of the 43-101 allows share price to properly reflect the assets, as well as to strengthen its ability to borrow against them. Also, I'd like to see some more deep-pocketed investors whose buy-and-hold hands will cut the amount of float that can be manipulated.
I'm less focused right now on the 43-101, and more focused on the part of the PR which says that they "will also discuss recent planned land acquisitions, plans for further consolidation of the Comstock Lode, the progress at the Hartford Complex mine, and exploration opportunities within the Comstock." At this point, the story is what will give us a premium over simply the value of the currently known assets to help put some valuation to the other 90% of GSPG's property. If management can get the story right and sell it correctly (good results on 10% = lower risk on 90%), then we can start getting investors willing to buy into the float (rather than through private placement). Only then do I see this thing getting over $0.10/share.
Comments are welcome and appreciated.
Thanks, Darby. Very nice article, which highlights and confirms the cost estimates floating around here of $350-$400 per ounce-gold. Also, his opinions on the long-term trend of gold prices is interesting, especially considering that this article was from last month and did not include the potentially long-term "dollar-damaging" news from yesterday (Fannie/Freddie bailout).
Although a further weakening U.S. economy and Treasury/Fed balance sheets would support and fuel gold prices, my concern would be that this would also weaken GSPG's ongoing source of capital. I have to imagine that Winfield's boat would also go out with the economic tide (squeezing his liquidity as well), and I don't think it would be prudent to assume that we're looking at a limitless line of credit from him. Hopefully GSPG's management has some contingency plans in place to either (1) speedily restart mining to generate cash-flow in case liquidity issues hit sooner than planned, (2) diversify capital sources once the 43-101 officially comes out, (3) divest a portion of the properties that have been mapped, or(4) partner with a deep-pocket major firm without needing to give up more than GSPG's fair share percentage (which sometimes happens when they smell fear and urgency). I guess time will tell...
No problem, glad to help. If you read through the German board's posts, it's actually pretty interesting stuff. Nothing mind blowing, but at least it provides another perspective on GSPG's trading patterns.
Thankfully, it seems to be a very civil message board without a lot of rantings and back-and-forth arguing. Can you imagine some poor German trying to translate info from the Yahoo message board? I'm sure most would give up trying pretty quickly, which would be a shame since they sometimes have some decents posts with worthwhile insights.
From what I've read there, it seems our friend StockFactory is their resident expert on what is happening on the American boards (both iHub and Yahoo). Imagine that, GSPG has it's own International Investor Relations Ambassador. Nicely done, StockFactory.
StockFactory, thank you for the link to the German message board. It's always nice to read new info, even from overseas.
thistime (and all others who, like me, can't speak/read German), use the following link for Yahoo Babel. Under the "Select to and from languages" pull-down menu, choose "German-to-English". Then simply cut and paste the German message posts from StockFactory's message board for an English translation. Note, some of the English version's wording will be a little garbled with words placed in ackward positions, and other sentences will be quite clear. Either way, you'll be able to get the gist of the messages. It's actually pretty amazing, and who knows, maybe with enough practice we'll all learn a little German.
Babel Fish link:
http://babelfish.yahoo.com/translate_txt
StockFactory,
If I am reading some of your posts correctly, you seem to be following GSPG's activity on the German exchange (which many of us here do not, myself included). What is your opinion on the relationship between overseas (Germany) trading and domestic (U.S.) trading in GSPG? Are you seeing a correlation between overnight activities between the two exchanges? For example, does heavy shorting (possibly naked) in Germany seem to translate to a sharp drop at market open here, or vice-versa?
Please note that some of your posts can be a little difficult to "navigate", so if you can try to explain yourself as clearly as possible, that would be helpful. If you have insights or information that you'd like to share with the group on this topic, please do. Also, if anyone else has some input on this topic, don't be shy with it.
geb5794,
No, unfortunately I don't have a clue as to which of the previous mines are included as part of the 487-hole preliminary 43-101 report. My guess is that since the usual and logical process is to mine where you've previously explored, then at least some of the data must come from previously exploited mines. I'd also assume that Telesco would be smart enough to adjust any figures downwards to account for ore already taken out of the ground and sold.
As far as what type of return owners and managers are looking for, it's important to look at the overall payout to each party from a deal, rather than the small price per share. At a buyout price of $0.35/share, the total price paid would be in the neighborhood of $1.5 billion. Insiders (Faber, Golden, Jolcover, Winfield, etc) own about 50% of the shares outstanding which means the owners and managers would be looking at a $750,000,000 pay-day... a 1,000% return from today's prices.
The only other category of investor that can resonably expect returns that high in a short time-frame are venture capitalists, angel investors, and their underlying entrepreneurs. Usually these types of people grow the company privately and only use the public markets (NYSE, Nasdaq, Amex, etc) as an exit strategy. But if you look at it, GSPG is actually based on a similar structure with an angel-investor/venture capitalist (Winfield) and underlying entrepreneurs (Faber/Golden) looking for outsized payouts with outsized risks. The difference is, you and I happen to be able to invest alongside them in this venture since GSPG was made public way-back-when, which would not be the case in a usual venture of this kind. But make no mistake, 100% serious consideration would be given to an incoming offer of $0.35/share.
JellyDonut,
I did write $0.045/share as a value for only the ore discovered to date. The $0.45 number was found by inferring that since 10% of the land yields $0.045, if the remaining 90% is identical we'd have current ore value of $0.45/share. This is similar to calculating a company's cash per share by taking it's cash on hand and dividing by shares outstanding.
Over the long-term, a company should not be priced soley on the value of one asset (such as cash, or currently discovered minerals), but in the very early stages of a company these are usually the most concrete verifiable figures used. If you owned a lemonade stand, at first your company would only be worth the stand itself and maybe your lemon/sugar/cups inventory. But as you grew and prospered, your company's value would begin to include other intangible factors such as your consistent revenue stream, prime location, brand, and goodwill in the neighborhood.
Obviously my numbers assume quite a few hard figures (most likely inaccurate) on variables that nobody (least of all, me) can firmly and irrefutably forecast. My estimates are possible, but not necessarily probable and certainly not actual.
I'm just speculating out loud here...
thistime,
Unfortunately tone and meaning is lost in message board posts, so I want to be clear that my last post was not meant to be combative in any way. In fact, most of the "presume" comments were thrown in as good-natured jokes, but I can see how someone reading it would think otherwise. Seriously, no hard feelings I hope, and thanks for responding to my post.
thistime,
I agree that I was being very presumptuous in my assumptions. Your use of "IMO" in stating that the current round of drilling has been done with "much more diligence and focus" and based on a "careful analysis" (implying that the previous drilling was unfocused and lacking in care) shows that you also presume quite a bit in your opinions. That's absolutely okay and impossible to avoid.
Also, where the old holes were drilled is less important than what the holes drilled contained. We know that all of the holes contained an average of .80 ounces of gold/ton (from the report). Since 449 of the 487 holes in the report are from previous data (and the 38 new holes that were included didn't contain any over-the-top numbers to skew data upwards), we can assume (or presume, if you prefer) that the 449 previous holes were pretty darn close to averaging .80 ounces/ton as well. Now, since the current 57 new holes have produced similar numbers to the .80 ounces/ton figure, the only rational process is to assume that the next 43 holes of the 100-hole program will be similar (obviously I'd prefer a record-breaking bonanza, but I can't expect that or figure it in).
Anytime anyone is forecasting anything, it is absolutely necessary to assume and presume, since if everything was currently known nobody would be arguing about price (and markets would be perfectly rational... does anyone here think that's the case?). Not to be combative here (seriously), but since your opinion is that the 57 holes from the Hartford Complex are "most promising" and should be given preference to all other data, do you have any estimates calculated of your own?