directors wiish coming true, page-27

I'm sorry Panda, I'll explain the loan thingy a bit clearer.

Earlier this year GDN took out a secured loan of $2.5m at 8% interest.

This loan was to provide for the drilling of PB3, for which the cost estimate was $5.5m. Is this the number you talk about when you state that the well cost $5.5m? Do you know the difference between an estimate and a final cost?

But back to the loan - GDN defaulted on the capital repayments at some point, probably the September quarter one, as a result of which Social Investments could have appointed an administrator to the company - that is, the directors would have lost control of the company to an administrator appointed by Social Investments, whose sole purpose is to sell off the company assets so that Social Investments get their money back. But, SI agreed to reschedule the remaining $500k of the loan to be repayable in full on the 15th January 2011, with an interest rate now at 16% reflecting the increased risk of lending money to GDN. I think it is significant that the second tranche of WCU shares settles on the 11th January 2011, subject to regulatory approval (whatever and from whom that is).

So, the point about the 16% is not the dollar amount, that is irrelevant. The point is GDN is a high risk borrower, and nobody in their right minds is going to lend them any money. Field exploration is high risk even if you are not GDN, for which you raise risk capital, that is, shares (and, of course, options). GDN does not now have any security for a loan - Johnson Range and WCU are all sold.

Back to P3. At the end of December, they had $652k. They raised $1,012k on 26th Feb, $3m from the sale of Johnson Range, $1.56m on April 1st, $1.4m on May 21st, $1.73m on July 15th, $2m from the first tranche of WCU on 7th September (and a further $1m from WCU on the 10th November).

So, between 1st January and 30th September, they raised, by sale of assets or issuing of capital, $10.7m, and still owed $500k on the debt, so that's a total of $11.2m of debt, equity and assets. They had $683 at the end of the Sept quarter, $21k more than at the beginning of the year.

So, despite their original estimate of $5.5m for the well, it has cost more than twice that.

If this company wants to drill Leadville again, they will need to surrender a large percentage of ownership to get a JV partner, or start to get significant revenues from JR royalties. Debt funding? Not a chance. Equity funding? With their record?

Oh and just for the record, they only have about $1.4m in the bank, not $2m. If all goes according to plan, they'll have about $2.2m by mid January, after paying off the loan. This is good - it means that if the sale of the remaining WCU falls through, they will still have enough to pay off the loan anyway after the November WCU sale.