Squandering on a couple of new stocks .. GCY, CUP

finicky

finicky

Well-Known Member
Silver Stacker
Thought I'd have a Sunday prattle about my place of worship, the Australian Stock Exchange, and two new stocks I've recently tucked into my financial empire ...

GCY - Gascoyne Resources
This little piece wilted at my thrusts at around 42c and is a W.A gold mine developer with 3 projects. I never thought I'd go for something like this again, but became more and more intrigued by my 'research' after watching a youtube video by 'between the lines finance'. 'Sucked in' might be a more realistic take.
https://m.youtube.com/channel/UCOnrqrR8h63PsvUgK-l6CXQ
Gascoyne has a low grade, but possibly high margin 1.3m oz resource (approx 580,000 reserve) at Dalgaranga.

The company has already raised $55m via placement and spp @ 50c per share. It is confident bank finance is imminent for debt of ~$40m more. Together this will be enough for a gold plant and infrastructure for which it has already purchased long lead items and contracted a builder, GR Engineering (GNG)

The money should start to flow in fy18 at 100+ kozs p.a and asic $950. Six year mine life in revised plan, but hinting at much more.
If you believe the company, prospects abound at Dalgaranga. They've already found two new resources to drill out and add to inventory. But the bigger plan is to pay off debt from Dalgaranga then use cash to move on to Glenburgh, their other project. Another 1m oz resource so far, that they believe will get much bigger. There is a presentation from the m.d of GCY linked from this Swiss Mining Inst conference:
SMI (22/06/17) : Michael Dunbar - Gascoyne Resources LTD. (ASX:GCY)

A few impressionistic things I like:
  • They might get this ball rolling and gathering speed without too much dilution - 385m shares so far, if fully diluted for 8m employee options, with only debt to complete Dalgaranga financing.
  • Two projects with big looking possibilities, plus a smaller third that might materialise down the track.
  • Dalgaranga high margin, modest debt, with more discovery potential.
  • Dalgaranga, at least in early stage, should benefit from low cost drill and blast, easy milling, low reagant use cheesy ore.
  • Dalgaranga cash used to finance Glenburgh project later on.
  • Relatable sounding management that some optimists opine will look after shareholders.

Disc: Hold 15,000 shares @ average 42c.
Note:
The cap raising was @ 50c.
Its Speculative

----------------------------------------------------

CUP - Countplus Ltd
Scrounged these as they were being dumped again on Friday - 5,000 @ 52c.
Aggregator of accountancy and fin advice firms.

The company update referred to the founder and former chairman leaving, a matter currently before ASIC wherein one of Countplus's advisers from a member firm has blown clients' money, two unprofitable member firms sold, investment in Class Ltd (CL1) sold down, debt reduced by more than half, changed board, changed business structure with member managements to buy direct equity in their firms of employment.

They don't know yet what will be the compensatory cost of the ASIC matter, have only provisioned $1.1m against it. Won't even give the market an upper limit of liability, and are in dispute with their professional liability insurers as to whether they are indemnified in this matter and to what extent.

I havent done well in my latest scavenger buys (VTG and VOC), but was attracted at the CUP price because:
  • ROE has averaged 20.7% over their 6 full financial years of operation. Fin Year 2016 earned ROE of 23% before the ASIC bomb dropped. Book value has not grown significantly over the 6 years.
  • Trading at book value, although most of that is intangible and could be vulnerable to write-down.
  • Debt doesn't seem too risky at $11.6m after recent asset sales. That's against shareholders equity of $59m end fy16. There would still be cash in the bank.
  • Average historical earnings per share over the 6 years has been 10.8c, this is a past p/e of 4.8 against Friday's closing price of 52c. Their lowest eps year (fy15) was 9.4c which is conceptually a past p/e of 5.5 against price of 52c.
  • Average dividend over the 6 full years of operation is 9.7c. If they can get back to 8c in fy18, or even fy19, that'd be a yield of 15% franked. Their dividend has been as high as 12c for 3 of the past years.
For growth, the shareholder will be hoping for earnings accretive acquisitions to the Countplus network, better governance and better choices in the firms they buy.

Disc: Hold 5,000 shares @ 52c
Very speculative
Disc: Just to remind anyone of my incompetence in this sort of endeavour, losing on picks like VTG lately, at break even on VOC, losing heavily on DRM where I might do all my chips on that one.
 
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Oh no, an astute poster over at h.c has brought up objections to some technical aspects of the proposed mine at Dalgaranga by GCY, and questions overly optimistic assumptions by management, considering nearby miner Ramelius probably couldn't profitably mine Dalganga grades. Then he mentions another neighbour SLR at Murchison whose mine went broke at higher grades, then he mentions another start-up comparison, BLK, that is stumbling, then he talks about how shale is not a strong rock and might cause pit wall failure. Oh no, is it happening all over again?
This is the sort of stuff I have no hope of considering analytically, its all news to me.
I cant post over at h.c and ask his permission to copy, but hope he doesnt mind me pasting here for anyone interested who doesnt read at h.c ...

Given what we have seen over at BLK recently I'd be a little cautious when assessing GCY bold statements about how good Dalgaranga is going to be. Below is an extract from BLK's Matilda/Wiluna production update. The average grade mined YTD at Matilda is 1.4g/t which is the same as the expected head grade at Dalgaranga in the 1st year (1.43g/t). BLK are blaming higher strip ratios (above LOM (8:1) in this quarter (11.9:1) and past quarters (as high as 15.2:1)) and rain events (slow digging rates) and wall slips for reduced production and rising AISC.


I note that from the FS released last year that the strip ratios in the first two years of mining at Dalgaranga exceed the strip ratios that have caused problems at Matilda YTD.

A further thing I noted from looking at the FS for Dalgaranga is the preponderance of shale in the footwall of the gold lode, and in the mining inventory there is a lot of shale being mined. If you look at the heterogeneous Geological Strength Index GSI for undisturbed silty or clayey shale it doesn't rate well at all. See the table on page 14 of this text on rock mass properties.

https://www.rocscience.com/documents/hoek/corner/12_Rock_mass_properties.pdf

From a layman's perspective the upper parts of the proposed pits at Gilbeys and GW might be easy digging as the managing director explains in that Swiss presentation but for that same reason the pits might throw up other problems (slow ore movement with rain and potential slippages). I note this dot point from the FS

"The Mine Schedule indicates that the first 24 months of mining will need to be at a high movement rate to uncover the required ore to maintain plant feed in later years."

I find it hard to believe also that the parts of the pits below the Saprolite where the pit walls change angles from around 35-45 degrees to 58.5-62.5 degrees won't involve blasting. I further note that the pit wall angles have been designed by a geotechnical engineering company that looks on the face of it like a one man band. Not questioning the competency of that one man, as in the end you are better having one competent person than a dozen incompetent people, but it was just what I found when I was looking at the FS.

Given experiences with other recent gold mining start-ups where they over promised and under delivered on margins I'd be very weary about this development. The NPV at 8% and a gold price of $1,600 is A$177 million so the company is more or less fully valued at the moment (I know they have another million ozs and exploration potential so don't shout me down please) but you are taking on all the development risk. I also know that across the road at RMS they would struggle to go forward mining pits of around the 1.3g/t grade level which is the grade of the proven and probable ore reserves at Dalgaranga. I know its easy to get swept up in the excitement generated by the MD's confidence in the project but I can't see why this project is more special than other projects that have failed at around the same grades (SLR's Murchison project is another nearby failure at even higher grades). I hope this isn't another story where we need to go sifting through the old FS to see how things went so wrong. Better to try and poke holes in the story early if you are going all in. Esh
Click to expand...
 
I just read the exact same post before seeing this :). There's a lot of cheap gold companies on the ASX now, but have to be very selective with which ones you go with. There are too many bad news stories over the last few months re: BLK, DRM, ORR, WPG to name a few. Then there's a handful which are over-delivering on their guidance (recently: RSG, NST, SAR, ALK).
 
Yes, I thought I'd reformed - a punt on a developer is my old abandoned style of investment. I'm too easily influenced; often by enthusiastic presenting M.Ds who characteristically skate across or entirely omit discussion of risk. After all, there's no risk for them with bonus and incentive shares and high remuneration for years whether the project succeeds or, most often, fails. No accountability for past optimistic projections either; just on to the next reckless scheme. Have to remind myself they are functioning purely as salesmen when on the podium or writing presentations.

I did pick up 1,000 more NST during the latest shorting attack. There is weakness showing up on weekly charts of stocks like NST and EVN though imo. The 6 months uptrends are looking fragile. Couldn't resist a few more NST.
 
Dumped my 15,000 GCY shares for a loss of a few hundred dollars. Back to my knitting, watching for possibly lower prices of NST ahead.
 
Finicky you seem to have an addiction to loss making speccy stocks. Maybe you need to visit a psychologist or something? Or at least have a an online sports/political betting account where you only put a few hundred a month in it to stop your gambling addiction from spilling over into the stock market where you could lose real/big money.
 
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