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AIM and ASX listed gold miner Norseman Gold (LSE:NGL) has been one of my worst share tips. Its previous management team lead by the hapless Barry Cahill over promised and under-delivered. Actually that is too kind. They delivered up horrid surprise after horrid surprise. I know that a lot of folks have given up, sold and blame me for their losses. Well I never said sell and, indeed with the stock at 3.5p, I would personally be buying more as the shares are very cheap indeed. Oh yeah? You said that before. Yes I did but here is why I am right. It is down to 4 matters: management, the gold price, costs per ounce and volume. This is a penny share that could be a ten bagger.
There is a new management team at the helm. The new Executive Chairman is Kevin Maloney. His group Tulla Resources is now a major shareholder in Norseman and is running the operation. The team there have a track record of success, creating MAC Services and flogging it for $650 million two years ago. So they have capital, a track record of success and an eye for a deal. Maloney did not need to get involved with Norseman but wanted to. It is a commercial decision. Tulla now owns c19% of Norseman.
The first task is the cost per ounce. Maloney says that he will have Norseman running at sub $1000 within three months. Already in the five months of Tulla involvement the cost per ounce has come down and as production increases rapidly (it was c7000 oz in the first calendar quarter but will be much higher in Q2) there is every reason to expect that target to be hit.
Next up is output. 7000 oz is piss poor but the mills are now running 24 hours a day. The current resource at Norseman is 3.4 million oz but Maloney reckons that there are stacks of unworked projects in the region. And so he talks not of 100,000-120,000 oz per annum but of, eventually, hitting 300,000-400,000 oz. That I shall believe when I see it, for now I will be happy if Maloney hits base camp ( 100,000-120,000) within a year as he says he will.
Variable 4 is the gold price. For the sake of argument I will use today’s $1600 oz. But given that we are set to see mammoth Quantitative Easing in Euroland, the US and China we all know that $2000 plus is on the way. Thanks to operational gearing that is just a bonus.
Maths? At 100,000 oz on a $600 margin Norseman chucks of $60 million cashflow ( call it £40 million). At 120,000 oz on $2000 gold that goes to $120 million, £80 million. There are c490 million shares in issue so at 3.5p the market cap is £17 million. However there are also a stack of convertible loan notes in issue and warrants to boot. The warrants are all at 12p so let’s ignore them pro-tem. But if the £11.6 million of loan notes are all converted ( at 6p) the number of shares in issue goers up to c680 million so the market cap is £24 million. Norseman has net cash.
So what is fair value? Twice base case free cashflow generation – i.e. £80 million – that gives you a share price of 11p. With Norseman there are so many variables on the upside and downside and it will take a long while to forgive its past sins. But 3.5p is just the wrong share price even at $1600 gold. If I am right about both Maloney and the gold price this stock will be at 30p plus within a year.
you may be surprised, Tom, but I agree with you.
I have never sold my shares and since Tulla come along have been buying small amounts every month or thereabouts.
Larissa.
I am delighted that
a) You have come back here after our misunderstanding a few days ago
b) We agree on this. I think that this is the second thing we have agreed on now. I am sure if we work at it we can find a third
c)You are still holding NGL and will, I believe do very well, as a result of averaging down.
Many thanks for the feedback which is, as ever , appreciated.
Tom Winnifrith
I do hope you are right Tom!! My average price with NGL is 13.45p at present, so 30p this time next year would do me fine.
It’s my birthday today so I hope your “30p” will be a late present!
Cheers
Peter
Peter
Happy Bitrthday and enjoy the day whatever you get up to.
Fingers crossed on 30p, certainly from, here we should be seeing huge advances.
Thanks for your feedback & if that is the Peter G I think it is (COYI)
Tom Winnifrith
Hm. TW backs a junior goldie with a trashed share price. Do I
a) fill my boots
b) switch to Eastenders
c) fill my sickbag
Winnie the Merde,
Once again, so nice to hear from you again. Some of my gold t1ps have not done well. Others have – CEY tipped at 8p sold at 134p for example. Folks who backed that one and made c1500% can afford a few that lose money and still want to buy me a beer.
What should you do in this case? Well it is your call. Eastenders is a fairly hopeless programme generally watched by complete morons so I would have thought it was right up your street.
As to having a sickbag, are you unwell? Perhaps you are reacting badly to the medication? Maybe you should get a new prescription but it is also important for deranged obsessives such as yourself with compulsion to post utterly innacurate shit anonymously on BBs to seek counselling as well. Whatever happens I do wish you the best of luck with your ongoing therapy.
Filling your boots. Well if you look at my overall track record over 12 years and would like to make money I would suggest that FACTS suggest that would be a good option. But of course that decision is yours, unless, of course, your precarious state of mind has already forced your relatives to place your financial decisions in the power of an attorney.
As ever, I thank you for your feedback which is much appreciated.
Tom Winnifrith
I can confirm that i invested in Medusa mining and Centamin Egypt from information initially recieced from the t1ps.com site.In both cases my own perosnal gains were between 700 and 1000%.I of course took my own decison on when to sell.
Yes if a t1p goes wrong you can loose 100% .I have a backed a few duffers where management have proved to be dire.In these cases the jury remains out and i suspect in some cases there will be a comeback, but in other cases perhaps not.Ngl have a new team at the helm.
The most ingredient for backing winners is backing good management.
However good the story if management don’t know what they are doing they will wreck it.
in a few weeks ngl will announce the june quarter figures so all will be revealed.
Fackin hell Kanji, you still trying to flog stocks – you cost me a fortune son!
Sohail
Thanks for backing me up. That is much appreciated. I cannot believe that June numbers will not show some progress given comments made by the new chappie last week – he should know!
John Clough
I am sorry but I am not bright enough to understand what you are going on about.
In both cases thank you for reading this column and all feedback is always appreciated & noted. If not always understood.
Best wishes
Tom Winnifrith
well, I bought 10,000 more pounds today.
my idea is to keep on adding, but on price rises. I know that I will lose a little bit of gain but think it is safer. Really I am looking for confirmation that I am right.
Hi Tom,
Any advise on gold shares, fund or IT, that I can invest via an a ISA???
Many thanks,
Nas
Tom,
I hope u will be happy to hear that I added another 10,000 pounds today.
Here´s expecting!!
L
Larissa
Good luck. I look forward to the June numbers with interest.
Nas Well if you are looking for a dual listed AIM share? Er… NGL does qualify. I am sure that there are others but right now none spring to mind.
Thanks to both of you for your comments.
Tom Winnifrith
oh, dear, a placing.
may not be bad though
Larissa
NGL’s form in treating non institutional investors with contempt is unchanged. But my analysis still leaves me feeling bullish about the shares. The management not in my good books.
Best wishes
Tom
PS – Article here if you missed it.
https://www.advfn.com/newspaper/tom-winnifrith/6783/norseman-private-investors-treated-with-the-usual-contempt-but-not-a-reason-to-sell