RE: RE: RBC Capital Markets Per RBCCM (see below) - company is dead. Good-bye CMK. Ernest/Ken/Sean, very sad. How stupid is it now to have said to go after the BC gov't. Do you think you'll get any money now from BC? What a shame. No major will take them over. Wait till liquidation process starts then get the mine for a song instead.
Event
Cline Mining reported its Q2 2012 results following its announcement on July 11,
2012 that it is temporarily suspending production.
Investment Opinion
• Balance Sheet: As of July 13, 2012, Cline had a cash balance of $16.9
million versus $29.0 million on May 31, 2012 and $35 million at the end of
April 2012. As of May 31, 2012, working capital stood at $19.6 million and
total debt was $50 million.
• Cash Depletion Points to Near-term Financing Needs: Our analysis
indicates that Cline will deplete its current cash balance by December 2012 in
the absence of any incremental revenue or financing (see Exhibit 1). With the
resumption of production and sales in 2013, we estimate that Cline Mining will
need to raise $50 million over the next 12 months to re-establish its existing
production ramp-up plan after the recent suspension of mining (see Exhibit 2).
Assuming a 10% decline in our realized price assumptions, that financing
figure increases to $75 million over the next 12 months (see Exhibit 3).
• Timing of First Sale Remains Uncertain in Weak Market: Our assessment
indicates that Cline's New Elk operation produces a marketable "B rank"
high-vol metallurgical coal product (see Exhibit 4). However, the timing of
spot sales remains uncertain given weak demand in the second-tier
metallurgical coal market. Signing a sales contract would provide cash flow
and reduce uncertainty over the marketability of Cline's coal product.
• Revising Recommendation to Underperform, Speculative Risk to Reflect
Liquidity Concerns and Risk/Reward Trade-off: We have revised down our
2012-2013 production and sales forecasts based on recent production
curtailments. Our NAV declines from $1.41 to
.68. We have also lowered
our P/NAV price target multiple from 0.9x to 0.5x NAV to reflect heightened
risks around Cline realizing future cash flows. Our price target declines from
$1.25 to
.35. We note that we continue to value Cline based on future cash
flow forecasts; however, if Cline is unable to generate sales in H2 2012, we
view insolvency of the company as increasingly probable. Our Underperform
recommendation reflects these near-term risks and what we see as limited
upside potential for Cline over the next 6 months given our outlook for its
financing requirements.
Priced