Red Flags - Osisko

If I didn't know any better I would say the 'Red Flags' are now flying over Osisko. If you will remember, Osisko purchased Brett Resources, which was drilling off the Hammond Reef deposit, the only example in Canada of a gold reef. (aside from the EP Zone, which has yet to be proven up as such.)

Why it attracted my attention was that Brett Resources went at a very undervalued buy out in exchange for shares in Osisko. Osisko is now trading BELOW the offer price in terms of shares. The problem with the deal in my opinion was that shareholders accepted shares instead of cash, and at far below the NAV of ounces in the ground, without first knowing if Osisko was really what it was made out to be.

Since we are discussing leverage in gold shares this week, and that this may be a determining factor in the value of share prices, it need not be pointed out that a market darling like Osisko is more about the leverage in the shares and its bouyant share price, rather than the actual gold in the ground. I reserve the right here to blaspheme.

Certainly, the insiders have been selling mass quantities of shares:

A collapse of Osisko shares at this point will call into question all such companies that based their reserves on some very big assumptions, such as very wide intervals with low grades, on what was formerly a narrow vein project.

All you need to miss expectations is just one tiny, imperceptible gold flake missing in 100m of rock, and you'll never catch up. You'll be processing barren rock.

Financial Post

More fantastically, the Osisko CEO came on the networks, absolutely flabbergasted at the decline of the stock, reassuring investors of their world class deposit.

http://www.bnn.ca/News/2011/10/20/Osisko-Mining-CEO-talks-about-trading-halt.aspx

They got their share price, they diluted the shares and raised capital, they implemented production. They move mountains through their mill, moved a town, and yet, no matter how much money and material is thrown at the company, they may actually lose money for their investors in the end.

This will be THE object lesson in the markets for gold companies promising equity price gains above all else, while on the other hand falling very wide of the mark.

AND they will NEVER be able to pay a dividend of the kind you would have seen in the same depression era mines that had miniscule processing rates and robust grades.

They may as well be commies.

-F6