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AIM and ASX listed gold miner Norseman Gold (LSE:NGL) may change its management but its traditional contempt for UK private investors is a habit it seems to find harder to kick. And so having done the rounds of press meetings etc last week and created glowing copy and heavy private investor buying, comes news that it is raising A$12 million (£7.9 million) in a placing with institutional investors at c2.7p. For those penny share punters who bought at 3.5p after the puff this must come as a blow. How would John Terry put it? Norseman Gold are a bunch of “fucking knobheads.” That might be a bit harsh but had I bought in the market yesterday I think I would have felt pretty cheesed off. I feel a bit cheesed off myself for believng that this time it would be different with Norseman and writing THIS a few days ago.
But does that make Norseman a sell? No. Tulla ( the company now managing Norseman) is converting A$8 million of debt into Norseman shares and it is underwriting the placing. Its stake will head up to the high twenties in percentage terms. The company can now have no issues with cash and working capital and so we turn to the maths.
Let us use a $1600 gold price as base case. Consider that $2000 is possible and assume that costs are as, as new executive chairman Maloney says they will be, sub $1000 pdq. Within a year Maloney promises output of 100,000-120,000 oz although he talks of 300,000-400,000 oz long term. 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 now c990 million shares in issue. If all loan notes are converted that number goes up to 1.18 billion shares. So at just under 3p now the company is capitalised at, on a fully diluted basis, at c£35 million.
It really cannot have any balance sheet issues any more. And so it is valued at less than 1 times 1 year out cashflow on a base case scenario. On medium case scenario ($2000 gold and 120,000 oz) the multiple is less than 0.5. So what is fair value? Twice base case free cashflow generation – i.e. £80 million – that gives you a share price of 7p. 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 3p is just the wrong share price even at $1600 gold.
I wrote a few days ago “If I am right about both Maloney and the gold price this stock will be at 30p plus within a year” Well let me rephrase that.” Mr Maloney has secured Norseman’s future. Mr Maloney is putting his money where his mouth is and believes in Norseman. I can see a scenario where the shares are 20p within a year, despite this dilution, if Maloney delivers and gains more of an institutional following and gains the forgiveness of Private Investors who, once again, Norseman has treated with contempt.”
Pro tem: Maloney I think you are a knobhead because I do not think you should treat private investors in this way. But I also accept that you have done the right thing in raising the cash and you are sticking your own cash in. All that is a given. But I hope Maloney feels a little bit sordid as his behaviour is the sort of behaviour which reminds us all why the great grandparents of today’s Australian’s ended up in that country in the first place. As such, I say this through gritted teeth the shares are dirt cheap.
The presentation regarding the placing is not a bad one and it is worth reading HERE
