Am I missing something? My background research before I bought a few…
HGO are a small prospective miner sitting on 292,000 T of copper, 191,000 Oz gold & 3,313,600 Oz silver. This may or may not be worth something, since it is still in the ground, but at end 2007 was valued at NPV of $152m. Since then, reserves have been upgraded & commodity prices have gone haywire (copper & silver much lower though in fact gold is actually a little higher than in Dec 07 in US$ terms - in A$ it is worth a fair bit more). They say it is highly likely that there will be further reserves upgrades. But let’s say it’s all worth nothing for now (that’s $0 !)
They have taken over ITT, but let’s say that’s worth nothing either.
They own 22.6% of ESG. At today’s ESG SP of 56.5c per share that stake is worth $97.2m. As at 31st Oct HGO had $12.4m cash. Let’s call it $10m now. They have US$30m bonds just issued, convertible to shares if the HGO SP is more than 19c or so, but for now, let’s call it A$44m debt (it is unhedged so to pay it back they’d need to buy US$ at the prevailing exchange rate). So HGO cash & shares (i.e. highly liquid assets) are worth $97m+10m-44m = $63m. There are 341m HGO shares in issue…so $63m/341m = 18.5c per share.
Today’s share price is 10c.
If the bond issue results in shares being issued (164.5m of them), then strike the $44m debt & add the new shares to the equation, making current ‘value’ 21c per share. (But the SP needs to be 19c to convert anyway, so the debt is worst case…unless the forex rate really goes to ground).
ESG brokers are expecting significant upgrades in ESG’s assets. They are in the sector of the moment where takeovers are rife. Last weeks’ broker target is 98c per ESG share (Patersons), which in turn equates to HGO SP of 39c as calculated above. Anyone looking to takeover ESG can buy a large chunk of them by taking out HGO, and paying considerably less than market price for the equity (as well as getting a prospective $152m NPV mine thrown in for free!)
Every cent the ESG share price rises should result in a 0.5c increase in HGO’s SP.
I must be missing something…?
Anyway, with that thought, Happy Christmas to all & a prosperous New Year!
HGO Price at posting:
10.0¢ Sentiment: ST Buy Disclosure: Held
