Points To Ponder......
Some Technicals first:
- Gold is stuck under its 50 dma and it looks like is not having any success as far as a move up is concerned. IMHO that Gold price is eyeing a move towards 1000/oz, NOT 1400/oz as somebody suggested in an earlier post.
- EDV is stuck under its 50 dma @ .54 (200 dma is at .63). So, EDV is trading purely on the basis of Gold price. In fact it is behaving like a double leveraged play on gold (mostly to the downside) (gold down 37% over 12 months, EDV down 74% - same period).
Now Fundamentals:
- What can or should the management be doing in this environment to preserve shareholder's value/ market cap.
- Firstly, take a cue from their neighbour SMF. SMF's management cut back all capex programs aggressively last year. They have kept only one mine running and have decided to leave gold in the ground till the price recovers. Also, they did not go out borrowing more money from the Banks and are in a position not to be forced into "hedging" their future production. The fact that they have a very clean balance sheet makes them a very attractive "takeover" target. Their share price reflects all the right steps that their management have taken in these "challengng" times.
- EDV, on the other hand, has been spending money to complete the Aghbaou mine (hopefully we will get some news how things are progressing up there). Also, the management stated that they have "Increased" their debt credit facility and last Q-3 report showed that EDV has increased their debt usage from the previous quarters. The Hounde feasibility study results were discussed in the last NR and the management stated that it will be a "great project" with a capital cost of another 300 million+ going forward. So, EDV has a more diversified production structure than SMF (4 mines instead of one), higher production profile and a lower AISC. YET.... EDV is valued at 30% compared to SMF EV by the market..... WHY ???
Because:
- Market does not like the high debt that EDV has and has increased it, instead of paying it down.
- Market is favouring companies which are leaving their resources in ground rather than ramping up prduction at these depressed prices.
Expectations for the next NR:
- My expectations from our "astute" management in the next NR is :
What steps they are taking / have taken to address these obvious concerns that the market is telling them... and..
How do they see preserving / increasing the shareholder's value going forward in these very "challenging" and " different" circumstances for the gold mining industry.
- I hope they realize that all of the long term shareholders (holding >2 years) have lost more than 75% of their wealth investing in this company. I am sure they know that it will be next to impossible to "suck" more people in with this kind of performance.