Real vs ideal, page-15

There is a certain amount of hyperventilating going on here. Note:

1. All the Aussie listed small cap producers are getting killed. Look at the charts for RSG, RMS, DRM, SLR, MOY and BDR. They are all at, or nearly at, their year lows.

2. Lind has no incentive to trash BLK's share price. If you buy at price A and price A is higher than price B, why would you sell the stock at price B? If the chart remains on its current downward trajectory, then Lind will never have the opportunity to sell a tranche at a higher price.

And the logic that Lind would want to trash the stock price to takeover the company also doesn't make much sense either. At 19 cents, a $3m tranche will buy Lind 4.6%. So, after buying 4 or 5 tranches, Lind will be bumping up against the 20% rule and have to make a general offer. But then Lind will not only have to stump up all the equity capital but will also have to pay off the Orion loans as they fall due in Dec and in 2019 (in this scenario I think BLK will be completely cut off from the credit markets). And it will have to take control of the Board. Really???

3. There is a bear case which loki sets out and I think it makes perfect sense. AUD for most of the year has been holding its own against the dollar or better. This pattern could continue, so straining margins. Gold has struggled to take out $1,300, and geopolitical events ("rocket man" and so on) are just giving it a temporary lift. It could now head back down to $1,200. And with sentiment toward smaller gold miners in Aus being so awful, I should think it quite difficult for BLK management to access either equity or debt markets at the minute. As for AISC, this could keep blowing out on the upside.

4. Personally, I view BLK like an at the money option with a 18 month expiry date. Given the $19m of cash at end June and access to Lind equity finance (even if this is only $12 million max), it is quite difficult to see BLK run out of cash by end December when the first Orion loan must be repaid (difficult but not impossible). If BLK can get past December and manage to get some kind of positive operating cash flow, it should be able to keep going to the end of 2019. In that time, anything could happen.

Just as you can point a very negative scenario, you can also construct a positive one. The global equity market bubble finally pops sometime over the next 18 months and gold decisively moves higher. BLK has only had a couple of quarters of production. We really have no idea where steady state AISC is for BLK. BLK could manage to process the oxide ore at a $400 or $500 margin. Management could also announce a short term replacement for the Orion loan and then, as they string together a series of positive cash flow quarters, negotiate a larger, longer term facility.

It's just a case of probability and pay offs. Admittedly, with gold coming off sharply, these have deteriorated (and I've taken down the size of my holding substantially). But good investors should be comfortable with uncertainty. When I used to hire analysts, I would ask them to present a buy or sell case for a stock of their choosing. When they started talking to their Powerpoint slides, I would flip the situation and ask the to argue the opposite case. So if they had come in with a 'buy' argument for Stock A, they would have to make the case for it being a 'sell'. Only those with the intellectual capacity to do this would make good analysts and be hired (because they could weigh the evidence objectively, and thoroughly understand both sides of the argument).

So I get the sell case for BLK and it might be right. I wonder how many bears on this thread could potentially see BLK as a buy and argue the case?