Too many shares outstanding for a company of this size, 1.4 billion or so, when there should be about370 million if it had been managed right. This creates too much liquidity, encourages shorting, and encourages day trading for pip harvesting with algorithms and bots, and it discourages any North American investment (or should I say, additional investment), and it severely dilutes dividend returns on a per share basis, and has a number of other severe detriments.
They paid way too much for Dargues, $207 million for a 50k ozpa mine for 5 years in a declining gold price environment, insane really for that price, when companies like FFX paid $27 million for the same thing, and also got a gold plant double the size thrown in. Not sure what the directors here were thinking of when they paid that price for Dargues, I can only assume they were like deer in the headlights and go completely blinded.
The share price since the acquisition, is a clear indication of what the markets and perhaps the major investors thought of the price paid for Dargues.
I can see this going down with gold, into the 25 cent range, simply because of the expenditure for Dargues. The price paid for Dargues might also cast some doubt over the business acumen of some directors. However, the geologist here are good.
Dargues was worth about 70 to $80 million, fairly. And the dilution to acquire it was also very harmful. The reputation of the company to do reasonable deals, for the sake of shareholders, also looks like it took a hit. The failing share price down from 65 cents is a clear indication some problematic business decision making, though not of geological work or expertise.
So what can they do now? Well, they need a share consolidation, perhaps 1:4, and somehow get over the Dargues business negotiation price debacle and try and get some money back. In effect, the company looks like two factions, the geologist/technical faction, and the financial/business faction - and for too long it would appear that the geologists have been called on the bail out the bad business decisions.
They are still going to lose 100 points off the market cap, simply because it's an important measure and they screwed it up with excess liquidity when they clearly did not need to.
I'll check back again when it's around 27 cents and see how it progressing, and might even consider buying some stock at that level or less.
Gw
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