Metals With McGuirk: A Golden Star On Stage
Will they or won't they?
G'day. Quiet day on the metals with a tight couple of dollar range and we have just had the London AM Fix set at $462, down a deuce from yesterday. The $456-8 level should provide solid support but we must be mindful of quarter end and all that window dressing that just doesn't happen!! Resistance at $466ish. Silver continues to muddle and another test into the high teens should be expected with resistance in the mid 7.30's again. Not Advice.
Indian premiums suggest they are still comfortable importing gold but the Rupee is having an effect. The weaker it gets the less robust gold imports will be.
The HUI gave back a little ground yesterday and the 220 level looks likely again, to me.
I note Golden Star Resources (GSS) has jumped into the corporate fray, again, and been smashed 10% in a session. This is somewhat disconcerting to me, the activity, not the 10% fall in stock price! The Board blamed "distraction of management due to corporate activity" as to the poor results in 2004. Is this deja vu all over again??
Let's have a quick look, mindful that I have not spoken to the company recently and am going off publicly available info. The target is not a company that I have ever looked closely at. First, read the announcement.
This deal at first glance appears to fit into its corporate strategy:
Golden Star Resources CORPORATE STRATEGY (taken from co. website)
Over the last few years Golden Star has successfully transitioned from being a focused explorer for gold into an emerging mid-tier gold producer, while still maintaining an emphasis on exploration.
The Company expects to grow its gold business with a continuing focus on organic growth from the exploration and development of existing assets.
Recognizing that consolidation can lead to improved fundamentals and increased competitive strength, Golden Star is open to transactions that bring producing and exploration assets which have synergy with the Company's existing activities and will improve shareholder value.
Currently the company has over 3.5 million ounces of reserves with upside exploration potential. That's a plus, and the only reason I own them--but we already owned those assets! What does the new "target" offer for our $118 million bucks? It appears that current GSS shareholders lose about 20% of the company in exchange for "Measured and Indicated" resources of about 1.3 million ounces. That they are close to existing GSS infrastructure is nice, BUT... I don't count that for much. Measured and Indicated resources are NOT proven or probable reserves so I hope someone at GSS has done some very serious due diligence. Management has a good record taking exploration to production but I would've thought it more prudent to get their own house in order and show it in the financial and operating results, before running out and spending such a wad of cash. As the biggest underperformer in the gold sector the past 18 months, more uncertainty is not gonna help much, in the short term.
I am not unhappy that I cut half of my personal position in this company at $3.47 about a week ago. The $3.50 level looked a tough resistance level on my charts. Holding some cash suits me fine today, but was feeling a little sick about the decision when trading over $3.70 the other day!
I am very concerned that they have paid too much for an "asset" that throws no income and might not actually "exist." It appears to me to be a big exploration play that will tie up large land holdings in the Ashanti gold belt. If so, it should've done this a long time ago, one would imagine. Something just doesn't sit right with this for me but require more information before I re-invest or pull the pin completely on them. I have plenty of other places to shove some money for a gold exposure without the "will they-won't they" that this appears to be headed towards. Interestingly, and this may give an idea as to my longer-term view of the company, takeover or not, I won't be turfing them from my retirement portfolio, just yet. Reserves are Reserves!
Just my take on things and definitely not advice.
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