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April 5, 2007
Disappointment at Shore Gold?, Thurs., Apr. 5, 2007, 1:26 PM
One of the most hyped companies at PDAC 2007 was a company named Gold but is all about Diamonds – Shore Gold Inc (TSX:SGF, OTCBB: SHGDF). Maybe the future is not as glittering as shareholders have been led to believe.
Apparently Canaccord’s excellent analyst Graeme Currie has dumped on the prospects of one of Shore’s major projects, saying the data from the Star Kimberlite initial resource estimate to date appears to be sub-economic. Those are fighting words for a company doing pre-feasibility that is expected to continue through 4Q07, with an estimated mine commission date in 2011.
The stock didn’t do too well.
At PDAC, Shore Gold broke the mining industry best practices code of withholding broker-dealer research. I picked up five research reports on the company, all of them glowing, including Canaccord’s.
Apr. 25, 2006 (C$6.57) – GMP rating: BUY, Price Target (PT) C$9.25. Conclusion: “Star Kimberlite project has the potential to transform Shore Gold into a meaningful mid-tier rough diamond producer.”Sep. 26, 2006 (C$5.10) – Canaccord rating: Upgrade to BUY, PT upped to C$8.25. Conclusion: “Shore Gold has been the most aggressive junior in the exploration and development for diamonds in Canada in the past several years. A pre-feasibility study on the Star Kimberlite (is being completed) at an estimated cost of $44 million.”
Nov. 1, 2006 (C$5.33) – Loewen, Ondaatje, McCutcheon rating: Speculative BUY, PT C$9.50. Conclusion: “The diamond content of bulk samples of the Star Kimberlite are consistent with initial drill samples, and indicate a very high economic potential for the property.”
Nov. 22, 2006 (C$5.65) – Wellington West rating: BUY, PT C$9.00. Conclusion: “Well-financed with an experienced mining partner, the results are encouraging for potential diamond production within five years.”
Jan. 17, 2007 (C$6.12) – RBC Capital Markets rating: Outperform, speculative risk, PT C$9.25. Conclusion: “Our target price increases from $8.25/sh to $9.25/sh, based on a 1.0x NAV multiple, and reflects an implied total return of 51 pct to the closing price on Jan. 11.”
Why I am interested of course is why traders would care to speculate on prospects of companies that have no hope of revenue for the next five years, and which rely on insider information hitting the marketplace and being hyped in the process.
Until the completion of pre-feasibility studies and the examination of all the data by independent third parties, this kind of trading is a crap-shoot. The stock, which has a 52-week high of C$8.75 is now trading at C$6.65. I suspect that as the other analysts get the time to review the data that Canaccord used to issue its statement, that price might fall some.
No position.
Posted by Posted by Bill Cara on April 5, 2007 01:26:58 PM | Category: Canada , Cara Today in the Market
Discourse
RBC has released an update on SGF dropping its target price from $10.50 to $9.00.
The drill results were from the Orion North kimberlite...http://www.shoregold.com/newsrelease/NEWSREL3April2007-ON-LDD.pdf. The Star kimberlite is where the diamonds are and hopefully the focus will get back there. (SGF has a controlling interest in the largest cluster of diamondferous kimberlites in the world. There are over 40 under-explored kimberlites remaining.)
The two big pluses/credibilty factors for me on the project now are that Pierre Lassonde of Newmont put $300 million into the project in the last two years and that SGF has $100 million in the bank.
Disclosure: I have been long SGF for years at a very low exploratory price...couldn't resist the idea of diamonds in Saskatchewan! I worry about the management/jockeys for this project from time to time as I think the scope and scale may have grown beyond their talents...is this a breach of Cara Rule No. 1 about riding the jockeys :)
PS SGF has recently hired a new IR person...don't know if this accounts for the breach of PDAC protocol.
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ALOHA !!
I agree about price vs production, Bill. That is why when US Gold(UXG)was in the $9-$10 range it was due to the mergers and ROBMANIA and had no basis in reality in terms of drill results or even years to production. Once the first signs of merger failure appeared I was selling. Now I think the UXG share price reflects more reality in terms of the property sizes involved and of course the ROB name. I am anxiously awaiting drill results now ... If only I was a fly buzzing around the core shack! In the "Gordon Gecko" School Of Corporate Espionage I need to get my 22 year old nephew out to the UXG core shack mopping dirt!
I am long UXG and I have no position in Shore Gold, never have.
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at
April 5, 2007 3:41 PM [link]