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Jim,
Just came across this (below) re esp. "dilution" exposure.
Do you think you have this covered or should it be a big future concern for us as stockholders?
Thanks and take care,
CIGA Ted
Dear CIGA Ted,
Many people write crap that know nothing whatsoever about mining.
The payback can be so fast on development loans that there are project lenders in the private markets. There are not at risk gold sale deals where the bank selling get $25 dollar per ounce sold, limited in time, as part of making the loan.
There are royalty companies that love to finance projects after definitive feasibility. Also, there are quasi-government institutions that are socially minded, eager to make development loans if the transaction is sensitive to the needs of the host nation.
I did the first 45%/55% deal under my management with a country, a transaction with many friends at quasi-government lending institution I have visited with. This writer in question has never ran a company in the extractive industry.
It is the nature of the deal and the quality of the project that raises the required capital and not the capitalization of the company doing the development. If this was not true there would never be a new major and majors who stink historically at exploration would run out of product in 5 years.
The quality of the professional's and director's mine building experience is very important if only to guide the turn key mine builders like Consulmet.
It is raving bullshit that it costs $1650 to mine today at an attractive project. The maximum cost according to outside expert opinion will be $750 per ounce published in my PEA.
Surface gold property mining is so low it is comical, and therefore modest resources can be cash cows.
Regards,
Jim
Mining sector feels cold splash of reality FABRICE TAYLOR
From Wednesday's Globe and Mail
Last updated Wednesday, Apr. 25, 2012 6:07PM EDT
Most of us underestimate how devastating this process can be until it's too late. Simply put, dilution is when your economic interest is watered down. If a company you've invested in sells new stock and the share count goes up more than the value of the company, your investment is diluted. The more it can sell its new shares for, the less you'll be diluted.
Waves of dilution usually herald the beginning of the end of the investing cycle in mining. I think we're close.
By way of example consider the travails of Baja Mining Corp. It's a junior miner with a promising copper-cobalt-zinc project in Mexico. The company has spent hundreds of millions bringing the project to the cusp of production. In late March it told shareholders that construction of the site infrastructure was on schedule for production next year. It also said that the cost to build the mine was creeping up and that it would try to find ways to cut costs to bring the project in on budget.
On Monday, Baja treated its owners to some unpleasant news: the cost to build the project would come in at $246-million more than originally expected, a 22 per cent increase over the original costs that were estimated only two years ago.
The stock, not surprisingly, collapsed from about $1 to as low as 30 cents, with the market cap plunging to $130-million. That's bad, but it's just one part of the company's problems. It now needs to come up with a lot of money fast to bring its mine into production. It will most likely have to sell new shares to do so. Let's assume it needs to raise $100-million through the sale of fresh shares. At $1 that would have increased the share count by a hefty 30 per cent. At 40 cents the dilution will be a brutal 73 per cent.
Existing shareholders who don't partake in this financing, should it materialize, will lose more than half their current interest in the company. Dilution is painful and permanent. It never goes away.
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