What Happened?

GPR came out of suspension today and is trading at 11 cps. This is obviously a disaster, especially if you own a significant stake. So, I thought I would summarise my jumbled thoughts in order to better understand the best way forward.

WhatHappened?

It is not clear exactly what happened. I would guess that the directors have rushed into commercial development after acquiring the Woodlark asset from Kula Gold (KGD) without fully appreciating the risks and having a robust execution plan. In hindsight, it is also likely that further investment in resource enhancement would have saved a lot of pain. This points the finger firmly at the board and senior management as being incompetent and inexperienced. Usually, the PNG locals are blamed for causing problems. COVID is also an easy, amorphous risk to draw attention to. However, I do not consider these as deal breakers and there is no evidence of either having played a major role, despite reference to COVID in press releases.

It strikes me that contingencies have been poorly assessed and priced, project planning weak, the funding package provided by Sprott too tight and conditional, and they’ve had to bail early when in breach of the lending agreement before the project went entirely awry. This has created significant issues because GPR does not have enough other equity funds to take the project through to completion. Thus, the project is ‘half pregnant’ and managing that is very tricky. Some equipment has been purchased and is on site and other equipment is currently being manufactured etc. Do you negotiate your way out of mining contracts at significant cost or raise more money at a diabolical share price? With little or no confidence in the board and lenders running for cover, the latter at this stage looks near impossible, noting this project has had previous false-starts and already consumed well in excess of $320 million i.e. in sunk costs, particularly in establishing a reserve of circa 1M oz and an additional resource of circa 1.6M oz .

So, it looks like the best strategy at this stage is to keep growing the reserves/resource, about which there is some confidence, as recent good drilling results indicate. There is circa $28M cash at bank and $17M new equipment (for possible resale – which sounds stupid to me) or $45M in cash or cash equivalents versus a $57M market capitalisation or a share price trading close to cash backing or an Enterprise Value of $12M – simply ridiculous, but very possible in a share market where mispricing can persist for long periods.

WhatNext?

The short term outlook for the share price is extremely difficult to predict. Negative influences will be (a) end of tax year and badly disaffected sellers, irrespective of value, (2) uncertainty of the pathway forwards and (3) the current retention of a useless board which is populated with long-term shareholder appointees of very questionable ability. The newly appointed chairman is allegedly very capable, but temporary, and has no clout as he is a professional rather than an a representative of a large shareholding. In an ideal world, the board would be cleaned up irrespective of the approach, but I wouldn’t hold your breath. The positive influences are less obvious and will depend the actions of the large, existing institutional shareholders in a top-heavy register and, of course, news flow.

At today’s AGM the Chairman suggested a parallel strategy of seeking a corporate takeover e.g. another goldminer (and there are plenty of possibilities such as K92 or Emerald) or building reserves/resource such that a stand-alone option presents itself again sometime in the future. In relation to the first option, funding development out of profits and/or a stronger balance sheet looks prospective, but at what price to existing shareholders? Investors keep asking in this project, “Just how many times can the board get it wrong?”. A new board via cash or scrip takeover, for example, could have Woodlark producing in 18 months. Alternatively, if there is another 6 -12 months of in-drilling and new drilling at sites which have become available because of the relocation of the village, for example, then it is possible that the project EV could double given the favourable project economics. Obviously, self-determination is preferable to waiting for corporate action which may never happen. Long-term, I would not be surprised to see this project having an Nett Present Value well in excess of $500M.

SharePrice (closing at $0.115)

We are clearly not at rock-bottom, but close. I am not a seller and have added modestly to my holding @11cps today. In a best case scenario, this could be a winner from here and a lot can happen in 18 months – good and bad. For sure, the gold is still in the ground and while I am not optimistic I am not pessimistic either. If you’re a gold bull even better. I suggest patience and keeping up pressure on the Company on chat sites like this and direct correspondence to make the right decisions as progress unfolds.

This is not financial advice. PDYOR.