Replies to post #3743 on Great Basin Gold Ltd. (fka GBGLF)

[finbar99]

Trying to ramp two mines at the same time was nothing short of hubris, especially in a tough funding environment. I guess in mgmt's defense, money wasn't tight when those plans were made, but there was still zero room for production obstacles.....and I've never seen any mine not run into 10x the problems one could expect. So without doubt, they found themselves in a cash flow insolvency situation. That's the ideal bk candidate from a vultures point of view. I think the assets are great.....with we were looking at better macro conditions in the gold markets right now, but really any serious buyer is no doubt going to be looking at the longer term strategic picture. I was reading an interview with Nolan Watson from Sandstorm the other day. He was talking about how the relative small size of Sandstorm makes them very agile compared to the larger streaming companies that need to do much larger deals to move their needle - and he threw out 750 mm as a comp. Burnstone would potentially be a great property to acquire via a streaming deal. Whether the location in S.A. would make that a non-starter for a streamer, I really don't know - it's entirely possible. I still go back to Barrick's Pascua Lama project when trying to assess the value at Burnstone. Pascua Lama is about a 20 mm ounce resource - it's a little bigger plus it has silver credits, but Barrick has spent close to 3 billion and 20 years....and they aren't even close to production...and the logistics of a project at that altitude and remoteness are daunting. Next to Pascua Lama, Burnstone looks like a relative bargain at a billion.

[dano9008]

Let me first note that I have no experience with this kind of thing and I think experience is everything in having a good chance of getting it right. This is my first "BK-ish" stock and my first mining stock trade that required serious thought.

On the BK front, we seem to be in pretty good shape despite a projected loss in equity of at least 60 million from the process itself and the legal wrangling it involved. The lowering of the carrying value on Hollister to 90 million from 180 mil has been the most painful and the Boulder assets in Tanzania have been sold for almost 12 million and they were assigned a book value of 25 mil in 8/12. So, there has been at least 163 mil in equity erosion during this process. There is an advisory fee that looms over the sale of Burnstone, but it only applies in a context where the sale is profitable from a shareholder perspective and it seems to require the approval from both SA courts and the CCAA judge. For the most part, I've done a good job of reading the documents, but the document dump that came along with the settlement overwhelmed me and I have never found the time to really study it, so I lean on the monitor there. I do recall from reading the affidavits from the lawyers of the creditors, that they are especially ferocious (shareholders might need a safehouse). My takeaway from the BK stuff is that we will be OK if we maintain creditor protection through the sales process and we seem to have adequate funding to do that.

When I first looked into it in 8/12, Hollister was always characterized as profitable, so I thought it was reasonable to assign a premium to its carrying value. Now that isn't so clear. Then I thought a sale of Hollister could wipe out half the debt or maybe recapitalize without selling Burnstone, but now that seems impossible. Like you, I was influenced by the Q2 reporting, but I listened to it rather than read the transcript, so the emotion was evident. Ron Thiessen sounded like he was at a funeral and Lou Van Vuuren sounded like a true believer ready to fight. The disposition of Van Vuuren and comments he made in MiningMx articles is part of what induced me to buy. Like you, it was a value thesis that induced me to buy, but now that value has significantly eroded. We have not had an adjustment on the value of Burnstone, but Burnstone is in the hands of the BRP, so that seems to be his call. They are doing a liquidation assessment but that is a very different kind of thing with a different apparent goal - to pursuade the creditors that the BR process is worth it. I would expect any rational buyer to be suspicious of the reserve estimates at Burnstone. Further, having read through MiningMx articles relating to GBGLF going back a few years, it seems they never did enough exploratory drilling to understand the geology and get the mine planning right. Even in the block they chose to develop, they didn't get it right. And so, I am reluctant to trust their reserve estimates. On the other hand, the fact that management failed seems to help us at this juncture. Either the failure is due to management or the property is just very hard to impossible to profitably develop. Since they sale is about the property, we want the concensus view to be management failure.

I am sorry if that wasn't as rosy as you were hoping for, but that is how I see it. I look to average down, but that may be more a function of my personality than a fully rational assessment of the prospects. I think if the Hollister sale can get the debt under 300 million we have a reasonable chance of some success and of course, I hope the rosier predictions come true.