Basemetal - answer Basemetal:
I agree with you on the long-term debt being convertible into shares....however we also need to look further at the terms which allow this at the option of LSG (the corporation). See below (from pg. 21 of the bond prospectus):
"The Debentures will not be redeemable before September 30, 2015 (except in the event of certain circumstances described herein under “Detail of the Offering — Change of Control of the Corporation”). On and after September 30, 2015 and prior to the Maturity Date, the Debentures may be redeemed in whole at any time or in part from time to time, at the option of the Corporation on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption, provided that the Current Market Price on the date on which the notice of redemption is given is not less than 130% of the Conversion Price."
Therefore, for the company to exercise their conversion option, the s/p must be 130% of the conversion price, or $1.40 x 1.3 = $1.82. Most likely, if the company is viable after September 30, 2015 (date of conversion option effectiveness) their s/p will be at or above this level, so I will agree and say that the long-term convertible debt will become equity.
However......
After excluding the convertible bonds from TOTAL debt, there still remains $34 million of long-term debt AND $59 million of short-term debt @ Q3 end - $93 million debt in total. With cash of $91 million @ Q3 end (this does, appropirately, not include ore inventory as this is not a cash equivalent), the company has more debt than cash, even in a modified scenario. Additionally, LSG management is forecasting cash at Q4 end of $55-60 million, assuming 25k ounces of production needed to hit the 85k annual mark. Giving them the high number of $60 million, that's still a decrease of $30 million in cash during Q4. At that rate, LSG has two quarters of operations at current production and expenditure levels before they must access the credit line or raise new financing, neither of which is an attractive option or pleasing to the market (and share price)
I hope this more clearly explains the scenario, and why the market continues to sell LSG. This is not just tax loss selling, this is a going concern issue which is presenting itself to the market. I continue to purchase shares based on the facts of a potential mill completion, production & grade increase by Q2 2013. Hopefully these events will come to fruition.
Golfcar72