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Cline Mining Corporation T.CMK



TSX:CMK - Post by User

Post by mr1derfulon Feb 29, 2012 2:08pm
395 Views
Post# 19606062

A Good Laugh

A Good Laugh

I have to admit I have had a good laugh over the last couple of days. Yesterday, most on this board were excited over the big stock move touting what a great company Cline is...and today...everyone is angry and upset. Poor Shane is publishing e-mail addresses.

Cline is a very difficult company to get a handle on. I really have no idea of what their cost structure will look like when they start producing coal at a run rate of 1.7 million tonnes. What I do know is that coal mining is not a straightforward business. If you look at companies in the met coal area they all have the same challenges. Costs are rising(fuel, labour, etc.) for all producers even for big companies like Teck. Companies are also consistently missing production targets which also raises costs as the fixed components of cost are spread over a smaller number of tonnes. For Cline I would be wary of any cost guidance the management of this company provides. Also I would be wary of their production targets as so many things can happen that can happen to delay production. Again, these challenges are not unique to Cline.

The thing that bugs me about this company is that the insiders never buy stock in the company with their own dollars. They are granted options and then they sell in the open market. Just look at the insider reports and tell me the last time an insider bought shares in this company? On the other hand, insiders at Walter Energy of spent significant $$ buying shares. Just the other day an insider bought close to $1 million worth of shares. If I were a betting man I would bet that Walter Energy gets taken out before Cline.

One more thought also. Cline, even at full production targets will be a small secondary producer. Even if their coal is high quality they will not achieve benchmark pricing but at a discount to the benchmark price. The amount of the discount fluctuates but Grande Cache Coal sold their coal in the neighbourhood of a 5-10% discount to benchmark pricing even though their coal is high quality met coal. And why did this happen? Because they were the 3rd largest producer in Canada behind Teck and the old Western Coal. The combination of high costs and a discount to benchmark pricing work to squeeze your potential margins. Remember this with Cline.

 

 

 

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