I believe there are two sides to the BLK story. Perhaps one can look at St Barbara on one side from 2012 to now and the other is to look at New Energy Minerals Limited (formerly Mustang Resources, and formerly before that OGI Group, formerly that Golden Gate Petroleum.. you get the idea.
St Barbara did a rather overvalued acquisition in late 2012 of Allied Gold Limited and took ownership of the Simberi and Gold Ridge mines, the former being in PNG and the latter in the Solomon Islands. They already operate the Gwalia, King of the Hills and Southern Cross mines. The Allied Gold takeover was financed with US$250m 5 year debentures. Then came the 2013 horror year for gold and SBM saw its stock price fall 80% in a matter of one year. Their cash reserves fell from $180m to $75m in late 2014, while their debt ballooned to $420m at the same time because of the AUD weakening. In early 2014, the Gold Ridge mine was affected by the cyclone that brought the Solomon Islands virtually to a halt. The mine was draining the company's cash at AISC of up to $2 200/oz. The Simberi mine was sucking the company for $1 800/oz and took around 3 years to get down to being operating cash flow neutral and then positive. The company looked like it was not going to make it by the sheer weight of its debt. Of course, luckily the debt matured in 2018 so they had a few years to turn things around. Tim Lehany, former CEO, resigned in 2015 and Bob Vassie took over. And then everything was history.
As for New Energy Minerals, they were quite a story in the past 2 years. As Mustang Resources, they found some rubies in Mozambique and the market got excited with the upcoming sale scheduled in October 2017. The stock price rocketed in the September/October period but then got hit on the day of the ruby auctions. After the results were released on the sale, it appeared to be a flop and the stock fell back to the 2c mark, which was what it was before all the hype. They raised some convertible debt with Arena and the company's shareholdings got diluted further and they needed to do a 10-for-1 consolidation. Soon enough, they changed direction and decided to pursue vanadium and graphite instead, after one of their tenements showed good graphite and vanadium grades. However, their cash balance is quite low (less than $10m) and to continue, they will need to raise substantial capital. The saving grace they currently have is that they are not burdened by a huge debt load, but this is like a company that has changed names 4 times and gone on different directions as to what they are developing. To this day, the jury is still out as to whether they will be lucky this time with their graphite and vanadium deposits as well as a ruby producing mine that seems to be delivering commercial quality rubies rather than fine precious stones. The Board reputation is almost rivalling that of Blackham in terms of the amount of naked fury one can see at the mention of the company name, given it is a very raw wound for many.
Why am I raising these stories up? I want to point out I have been through both companies as a shareholder, investing a substantial proportion of my wealth on both. The net result of both my holdings is I made a profit, for the SBM profit much outweighed the loss on NXE. I hold neither of them myself, but under my name I hold SBM on a relative's behalf. In both cases, I used fundamental analysis but it doesn't always work. However, I recognise in both cases, the outcome is driven by factors outside of my expectations because the reports were not something that were foreseeable.
What with BLK? I would think BLK won't go under because the debt level is modest, well below $50m. Their cash balance is very slim, and the bullion they have keeps them cut to the bone. However, their mine is producing above 15koz per quarter, which means it is generating revenue that will not cause some seriously high AISC notwithstanding natural disasters or operational mishaps. $1500-1700/oz AISC looks unacceptable indeed to many. But this reminds me of Simberi for SBM, Darlot for RED, Nullagine for MOY and even Mount Magnet for RMS at one stage. The funding packages from Lind, MACA and Pacific Road that have taken BLK to where it is now show the company is still deemed a worthwhile investment from these investors. The journey up till now looks fraught with disappointments and under-deliveries. However, writing this company off to be a sure road to bankruptcy, I think it is a big call. I agree that the board and management have overstayed their welcome. Someone has to go up at the top and be replaced by another who have a better instinct in running this business.
Expand
