[miningmx.com] — GREAT Basin Gold (GBG) dropped another 9% in trading on the Toronto Stock Exchange on Tuesday with the shares hitting a new 12-month low of C$1.08, before recovering marginally to close at C$1.11.
That’s despite the actions of CEO Ferdi Dippenaar who invested nearly nearly R500,000 of his own money, buying 50,000 shares at C$1.23 on November 18, following negative investor reaction to GBG’s September quarterly results.
In a report dated November 18, RBC Capital Markets analyst Leon Esternhuizen has downrated the company and lowered his forecast on the GBG share price sharply.
Esterhuizen also questioned GBG management’s ability to deliver even on the lower production targets announced by Dippenaar for the developing Burnstone mine during 2012 and 2013.
“Given a historical under performance in meeting guidance and our belief that this ore body and mining method may hold more negative surprises, we have applied a discount of 20% to these targets,” said Esterhuizen.
“Our FY (financial year) 2012 and FY 2013 estimates are now 109,000oz and 148,000oz respectively, versus guidance of 135,000oz and 175,000oz. As a result our revised net asset value/share is C$1.36 from C$2.27 previously.”
Esterhuizen has revised his GBG share price target to C$1.75 from C$3.00 previously and dropped his investment rating of the company from “outperform” to “sector perform”.
“We still recognise that the GBG share price has the ability to outperform if the company can deliver the performance promised at Burnstone. However, we see continued risk of operational under-performance.”
Esterhuizen sounded a specific warning over the mining method being used at Burnstone which is longhole stoping.
The issue of the mining method was referred to specifically by Dippenaar in last week’s results conference call during which he commented “we don’t believe the rumours in the market that the mining method is failing”.
Esterhuizen pointed out the mine plan was now in its “third iteration”, yet GBG management had stated that it was still “in its trial phase”.
GBG management also said that “over the longer-term this change could positively impact the ore tonnes mined per metre developed as well as cash costs on a per tonne and per ounce basis”.
Esterhuizen commented, “in our opinion, this language indicates there is no certainty as to whether the new lay-out will provide an optimal platform on which to build a sustainable operation.
“We also note that management has for a long time put forward the previous layout as a significant improvement on the previous layout which would hold longer-term benefits, only for this to be changed again.
“This uncertainty, when combined with the greater impact of structural breaks (faulting) in the ore body has caused us to reflect upon our longer-term assumptions.
“We still hold the view that longhole stoping could work, but we now believe that this method will have much lower efficiencies – higher dilution leading to lower grades, lower volumes and, ultimately, higher costs – than was originally envisaged.
“This has resulted in a sharp reduction in our net asset value forecast.”
Esterhuizen’s conclusion was that the negative developments at Burnstone were outweighing positive developments at the Hollister mine in Nevada.
“We need to see consistent delivery on current operational targets before the market starts warming to the GBG story again.
“Until such time, we believe the market will only value Hollister and give the company no value for Burnstone. Continued under delivery there could also lead to a situation where that asset detracts from Hollister’s value, in our view.”
