Great Basin Gold Ltd. (fka GBGLF)

[amarksp]

June 11 comments and analysis:
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subsequent comment: Am not sure the $55-$85M Capex cited on Burnstone is entirely accurate, this seems low...
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Talked with the company today…

1) Every time LOM issues a research report beware, often a private placement soon follows, but my understanding is NO such private placement is being done anytime soon… LOM has historically been involved with all recent GBG private placements…

2) The Ivanhoe mine permit is expected by August and commencement of drilling in September. Speculation of July permit may be optimistic.

3) My understanding is many analysts may be missing the boat, production will begin in 2004 and not 2005. Actually, this should be termed “pre-production” as a formal production plan will likely not arise until 2005. BUT, my guesstimate is GBG will mine and truck out about 30,000 ounces during 2004 as part of digging the 6,500 foot decline and vein sampling.

From the HL Form 10-K:
“The underground exploration project will consist of approximately 6,500 feet of decline, cross-cuts and diamond drill stations, a minimum of approximately 2,500 feet of exploration and bulk sampling on different veins within the system, and approximately 40,000 feet of diamond drilling from underground locations... Plans for 2003 include applications for all operating permits, construction of the surface support facilities and a drive of the initial 500-foot decline."

From the 6/10/2002 GBG press release:
The Stage 1 program consists of underground development to access the eastern extremities of the high-grade gold veins identified to date, and underground drilling leading to the establishment of mineral reserves and completion of a feasibility study. Estimated costs for the completion of Stage 1 are US$10.3 million. Stage 2 consists of pre-production underground development leading to commercial operations from the Gwenivere and Clementine high-grade gold veins and is estimated to cost US$11.5 million.

FWIW, GBG is not going to be throwing away the tons of rock mined digging this 6500 feet decline, they will put this on a truck and head it to the mill for gold processing. 30,000 ounces multiplied by $217 profit margin ($350 gold less $133 cash cost) equals $6.5M.

4) The preliminary capex cost for Burnstone Area #1 mine is between $55M and $85M depending on whether it is a single shaft ($55M) or double shaft ($85) mine. The feasibility study currently being performed on Area #1 should allow GBG to obtain 60% debt to 40% equity financing, IMO. Thus, GBG is going to need between $22M and $34M of cash/equity financing by around 2006. Ivanhoe should generate around $23M cash flow in 2005 assuming $350 gold (and $4.5M G&A, exploration and other expenses). The 10M SouthGold warrants at $.75 would yield another $7.5M by 2006.

Thus assuming GBG can get 60:40 bank financing, my math shows that GBG would not have to issue any more stock via private placements to get Burnstone Area 1 into production. That's my hope anyway..., but GBG seems to issue stock like it was candy..., so I would certainly not rule out another equity offering...

5) Short term, we need that Ivanhoe mining permit issued by state of Nevada ASAP... Once this permit is obtained, I believe the market will start valuing GBGLF well over $1.00 and $3.00 is readily achievable in 2004, IMO, given gold over $325 and completion of the HL "underground exploration project" (described above) which will prove up once and for all the Ivanhoe 1M ounce gold reserve and likely expand this reserve by at least 25% via "2,500 feet of exploration and bulk sampling on different veins within the system, and approximately 40,000 feet of diamond drilling from underground locations."
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subsequent comments:
Also, still digesting some of the call/analysis..., GBG initial cash flow has to pay back the HL $21M investment first, so GBG still may need to finance, but GBG still has lots of cash on hand (hopefully they don't spend too much). And GBG really could internally finance this Burnstone mine if they could delay the mine startup until 2007, or hedge 6 months of production, or guarantee the loan with the annual $5+ million royalty from HL, or some combination thereof...

Burnstone capex of $55M - $85M seems low, needs verification...