[miningmx.com] — I LIKE when I see senior executives putting their money where their mouths are by buying their own shares, as Great Basin Gold (GBG) CEO Ferdi Dippenaar and Village Main Reef (Village) CFO Marius Saaiman have just done.
These guys should know what’s really going on at their operations so such actions should be viewed as a vote of confidence – particularly for a company which is not doing well, like GBG.
Then, what’s left of my “Clydeside communist” ancestry enjoys seeing corporate fat cats buying shares for their own account instead of picking them up gratis through share option schemes.
But it remains to be seen if Dippenaar and Saaiman will reap the same level of benefit as Pan African Resources CEO Jan Nelson did after buying his stock at 50c a share in late 2008.
Pan African shares are now above 200c following a rerating after the latest dividend declaration and a trading cautionary issued last week. Nelson declines to comment on when any further announcement will be made regarding that cautionary.
Dippenaar bought in Toronto on November 18 at C$1.23 (about R9.84), spending just under R500,000 to buy 50,000 CBG shares, which that day hit a 12-month low of C$1.22. It has subsequently traded as low as C$1.05 a share.
The slump followed the release of CBG’s September quarterly report on November 16, which contained loads of bad news from the Burnstone mine near Balfour.
Dippenaar was heavily criticised for persistent non-delivery by a US fund manager during question time at a conference call held the same day. He fended off the attack, pointing to the improvements expected during 2012.
GBG shares on the JSE had fallen from a high of R22.50 in February to R16.00 in early October and then dropped to around R11 just ahead of release of the September quarter numbers. They have since carried on down trading at 891c on November 27.
The main reason is that Burnstone, which was officially opened in February, is battling to ramp up production because of “the unavailability of sufficient stopes to meet the targeted ore tonnes”.
Gold production is way below plan – only 6,519oz was produced in the September quarter instead of the budgeted 14,000oz – and costs are running sky-high, jumping 58% to $2,283/oz (June quarter – $1,447/oz).
As a result, Burnstone has been forced to revise drastically its ramp-up schedule, which called for full output of 254,000oz/year to be reached by 2013. Instead, the mine will produce only 175,000oz during 2013.
GBG has been forced to restructure its debt and has set up a $150m term facility loan, which adds $80m to available cash resources.
Saaiman has ploughed R254,000 into buying Village stock at 184c each on November 18. As of November 21 he was already 4% down as the share eased to 177c.
Village shares have been on a roller-coaster ride this year plunging from a high of 290c early on to around 140c -after completion of the takeover of Simmer and Jack Mines – from where they have recovered to current levels.
Results from Village for the September quarter – the first three months that the Tau Lekoa and Buffelsfontein gold mines have been run by the new regime under CEO Bernard Swanepoel – show a dramatic turnaround to positive cash flows.
But it’s not all good news, because that’s been achieved through a combination of higher rand gold prices and a massive 32% jump in recovered grade.
That’s not sustainable although Swanepoel reckons the overall level of gold production is.
Bottom-line is that Village is a high-risk, high reward play. Saaiman will probably be well rewarded for as long as the gold price plays ball.
– The article first appeared in Finweek. If you want to subscribe to the digital format of Finweek visit www.zinio.com. The writer owns shares in Pan African Gold.
