22 Mar 2014, 15:50
sailtaker said:
Frank
I have some concern that the royalty shares by
taking ownership of some of the gold and taking a royalty off the top
will reduce the market value of my common shares. The common shares
have been bought at higher prices than current, and held for years
by some investors, also the common shares have paid for the resource
to be built. I understand the NSR is 3%, but would there be additional
royalty for the Royalty shares?
It would be appreciated if you could explain this adequately to alleviate
my concerns.
Sailtaker
It is where the market sees value.
For example we have 1.6 million ounce of gold in M&I right now. At 1,400 dollars an ounce and about 250 millions shares of GBB, the value of our gold in the ground is about 9 dollars per ounce.
If we use the BAA model which is a preferred share valued at half a gram, the gold in the ground is valued above 1,400 dollars an ounces on their deposit. Their preferred shares did better than the general market because they paid a dividend and are valued at half a gram gold. It was also a nice way to finance their project without dilution of the common shares. They just did another financing for 40 million. Again preferred shares.
In general preferred shares or royalty shares did better in the last market downturn than common shares. A nice way of funding the company development without taking on a loan.
Presently we have a 3 percent NSR on this part of the property. We can buy 2 percent for 2 million dollars. We have the right of first refusal to buy this NSR. If GBB was to buy the NSR and offered it to GBB shareholders as a royalty share to own or to an investment group to fund the development of the Granada Mine it becomes a win-win for all. No dilution of the common shares, and a royalty share that pays a dividend to the shareholders of the share.
Presently the 2 percent is 32,000 ounces of gold. We do not know what the market will give us in dollars for the gold. Lets take a value in the ground at 600 dollars. This gives us a valuation of 19.2 million dollars. GBB buys the 2 percent NSR for 2 million and sells it for 17 million dollars in cash or GBB common share conversion. No dilution, and GBB common shares float would decreased should some of the common shareholders convert to royalty shares.
The present market cap of GBB is less than 10 million dollars. If effect 1 percent NSR is about GBB market cap presently.
It is how the market values the gold.
I hope I answered your question with the above.
Thanks for asking the question.
Frank