vrijdag 4 juli 2014

Eric Sprott's Veris Gold and San Gold

If you hadn't noticed, Eric Sprott's Veris Gold (of which he had a 30% stake in last year) has filed for bankruptcy protection in June 2014. That's what you get if you can't pay back your debt and things happen like a crushing building catching fire in December 2013. The stock immediately lost more than half its value and shares got suspended.

This points out that there is inherent risk in investing in unprofitable junior mines. Not being able to produce at steady states is a killer for such mines. If this can happen to Veris Gold, then what can we expect from Eric's other pick: San Gold?

San Gold's new CEO has proposed the idea to divest from its unprofitable mines because San Gold also has a lot of debt with few cash on its balance sheet. If the gold price doesn't start to move up soon, we will see the same happening here. Their cash burn rate is at $7.7 million/quarter and their cash balance is at $16.1 million in March 2014. So they will need more money now. There is only a limited amount of convertible debt. If they do use the second convertible debt tranche of $36 million, it would only last a quarter or three until they go out of cash again at this rate. Let's see if the gold price will go to $2000/ounce at the end of 2014 as Charles Nenner predicted it would. That would be another story then.

I do believe that San Gold is not going to file for bankruptcy soon as Veris Gold did last month.

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