Assets/Considerations

If assets don't multiply, and you have to print money to liquify derivatives as the only asset where economies of scale are domiciled in the banking system, then risky assets will perforce decline in value. Gold is the great exception to the rule here.

Canada has been printing money yoy since the Nasdaq crash, but especially have de-regulated the banking sector allowing a free hand in derivatives. Since ABCP, Canada went from a $60b. surplus to a $50b. deficit, and added more after the 2008 crash. The next step in the process was to abolish the 'no-down-tick' rule. Considering the very strong inverse correlation of GBN.V with the 30-year U.S. treasury price, this means that GBN.V shares have fallen victim under the money-printing scheme.

This is very important and germaine to the valuation of GBN.V shares, since every new player in GBN.V shares is obviously engaged in hedging. There are no buyers. Since February of 2011, just prior to commercial production being established, the stock has declined. No new investors in the stock are listed anywhere on financial websites and no new Alternative Monthly Report regarding holdings has been filed under SEDAR, since the end of PEA. (the last 3 years)

The stock is trading ~50% of its book value, with no value attributed to the gold NAV and no recognition of project value on a Net Present Value basis. At one time, the Net Present Value was considered to be 14¢ a share(2007 - 2009 PEA), but the float had roughly doubled in the meanwhile. It would not come as a surprise that the Net And Comprehensive earnings for the end of the year is in the area of 7¢ a share. End of fiscal year 2012 was April 30. Financials reporting deadline is the end of August.

Now, since that time the number of players in the delta hedging business had increased, and there are now more of these big hedgers in the stock than there are actual investors. This is where the assets are increasing, where printed money is being domiciled, not in the stock. This is where 'growth' in the economy is occurring. I would say, however that the economy is being thrown under the bus in favour of propping up derivatives, and that GBN.V is the proof.

The company can change the assumptions in delta hedging strategies in place by paying a dividend. For instance, if they paid ~7¢ a share (estimated 10% of revenue payout for the year) then earnings become forward-looking, rather than trailing earnings. Likely the stock would appreciate along with the gold price. (assuming that this triggers the outstanding warrants and options, the treasury would fill up)

This would force a change in hedging strategies, where new players would enter into the game by delta hedging based on assumptions of foward earnings, instead of the players already in place based on trailing earnings or a failure in the gold price. You won't get rid of delta hedging strategies, because commercial banks and central banks are giving great support to derivatives almost exclusively. Thus you would announce your dividend yield after new QE, or a noted increase in bond buying by governments, which is likely to come.

If GBN.V does not recognize this important development and act to the benefit of the shareholders, then likely the only way to grow for the gold sector will be through acquisition, making GBN.V an acquisition target. An acquiror will have a steep uphill battle taking a majority of shares, unless Sprott turns hostile. A dividend yield as I had described would allay shareholder hostility.

The Waterton deal might have been concluded because Sprott is presently hostile. Certainly Sprott has acted as a Snow White banker in the gold space, where the Waterton deal is much more conducive.

Gold prices are required to be averaging above ~$1800/oz.+ before the lights really come on in the gold space, since this would reflect the same purchasing power prior to 1997 in terms of shadowstats. We're simply not 'there' for gold mining just yet.

The next step, as I see it, is either a full-on monetary crisis, or currency devaluation.

-F6