GBG - Gindalbie Metals

[dj_420]

I had held GBG since 60 cents and I just don't see much more room for additional growth. I think my money is better off elsewhere in the market at this point. I honestly don’t see GBG/SDL getting to $2 at this point. I of course could be wrong.

So far a lot of forecasters seem to have just got it wrong, zinc was forecast to be in deficit mid 2007 and so far we haven’t seen zinc stockpiles hit the bottom of that figure, they (stockpiles) came rather low in late 2006 early 2007 but then a lot of metal was dumped back onto the market suppressing prices. Nickel supplies were forecast to be in deficit for at least a year (2007) and the stockpiles are now growing. Are forecasters and analysts been perhaps a bit presumptuous for this demand?

I have been reading through a number of reports and have identified that world crude steel is declining growth is up 5.3% ytd from July compared to 12.6% at the beginning of the year.

http://www.fmgl.com.au/IRM/content/invest_brokerreports.htm

I also understand that there has been a great amount of investment on the Chinese behalf to aid in development of ore, BUT who stands to be in good stead when the market is flooded with ore and the spot price retraces…..the smelters will be! In addition to smelters any end users of the metal will benefit from a lower spot price, reductions in cost can be passed through to final consumers like any good/service. The only part of the supply chain that does not benefit from a lower spot price is the miners who are mining the iron ore.

FMG alone aim to be producing 55 million tonnes per annum from next year. They also claim that given expansion could surpass the production status of BHP.

http://www.abc.net.au/news/stories/2007/06/18/1954286.htm

The problem I think with iron ore seems to be how relatively easy it is to dig up and ship DSO compared to other commodities such as copper, nickel, zinc and uranium. The response time for a supply deficit for iron ore seems to be around 2 years once proving up a resource.

This article states that iron ore supplies are expected to be in deficit until 2011, at which point the supply demand equation will balance. This by coincidence is when GBG/SDL plan to begin ramping up production. My main point is many would be producers plan to be in production by this stage and the already producing BHP, RIO plan to have upgraded their production capacity by then.

 

[greenfs]

We are awaiting negotiations which will lead to iron ore price increases of between 25-40% if you can believe today's lead story in the Melbourne Saturday Age Business Section. I would caution that if you liquidate your position this will probably be at your own peril.

 

[dj_420]

We are awaiting negotiations which will lead to iron ore price increases of between 25-40% if you can believe today's lead story in the Melbourne Saturday Age Business Section. I would caution that if you liquidate your position this will probably be at your own peril.

Caution?

Ok lets do a little run down on the GBG/SDL situation, what capital do they require to get both resources up and producing?

For Karara they need an additional 400 million, for Cameroon they need 1.6 billion?

So a conservative 2 billion dollars capital to be raised to start production in 2010. Ok say the merger goes through and they do a cap raising at $2 (a 25% increase on friday's close). Lets estimate another billion shares on issue before projects are going ahead. That would put 2.5 billion shares on issue and they will just be starting production.

I think you underestimate the effect of dilution here and the need for further capital. Anyway I could well be wrong and they could run to the moon, I will be the one who has to live with that.

I am simply stating for now they do not offer much upside at all, even if the iron ore negotiations are to the upside they are notproducing. These negotiations will benefit BHP, RIO and FMG.

GBG was a great story until this point, I feel there is not much growth left to the upside only downside risk. I haven't seen many brokers recomending GBG as a buy at this point. I feel the GBG/SDL merger overvalues SDL quite a lot. The location of SDL resources does carry political risk.

I personally think that GBG should have done their project stand alone and it really stinks that how many big players Talbot included got very very set at 20 cents on SDL.

Anyways my two cents. Rugby has just finished so im pretty p!ssed at the moment!

 

[serendip]

DJ, your caution is justified, but there is nonetheless an opportunity to capitalize on the economic and geographic strength of the combined companies. There is not much room for doubt that iron ore customers are scrambling for long-term supply security in the light of forecast product demand growth. As we have seen with GBG and MMX, Japanese, Korean and Chinese customers are prepared to dip their hands deep into their pockets to fund developments. European customers must be viewing the current tie-ups with some alarm, and are likely to go down the same path. GBG-SDL should be well-placed to service both market areas.

I'm not sure about your capex estimates for SDL. In May, Don Lewis, MD of SDL, stated that the scoping study performed by Promet Engineers (of Western Australia) had come up with a total capital cost of US$2.46 billion for the mine, rail and port infrastructure. Has there been an update to this to bring it down to your $1.6 billion?

Cheers, Serendip

 

[greenfs]

One can gain considerable comfort from the Chinese Governments version of our own Future Fund, which has a reported war chest of USD200B.

An article by John Garnaut on the back page of the financial section of today's Melbourne Age gives this significant coverage and is well worth a read.

 

[dj_420]

DJ, your caution is justified, but there is nonetheless an opportunity to capitalize on the economic and geographic strength of the combined companies. There is not much room for doubt that iron ore customers are scrambling for long-term supply security in the light of forecast product demand growth. As we have seen with GBG and MMX, Japanese, Korean and Chinese customers are prepared to dip their hands deep into their pockets to fund developments. European customers must be viewing the current tie-ups with some alarm, and are likely to go down the same path. GBG-SDL should be well-placed to service both market areas.

I'm not sure about your capex estimates for SDL. In May, Don Lewis, MD of SDL, stated that the scoping study performed by Promet Engineers (of Western Australia) had come up with a total capital cost of US$2.46 billion for the mine, rail and port infrastructure. Has there been an update to this to bring it down to your $1.6 billion?

Cheers, Serendip

Sorry I thought it was 1.6, my mistake.

Anyways I had a great run on GBG from 60 cents, cant see it going to $2 anytime soon IMO.

Good luck to all longs

 

[YNKWRTNC]

dj_420,
Seems you are strongly defending your decision to sell your GBG shares (as you should) and I’d hate to say it, you mention all the worries that I feel as well.
Africa, too many shares and too far off production – they are the big ones.

2012 is 5 years off and the forecast of ‘middle of next decade’ they talk of is 8 years off. The boom is now, will it last that long?
Bloody SDL too. Cameroon, for f's sake. As stable as Kim Beazley on a tight rope.
And the amount of capital raising to get production to big volumes in 6 to 8 years time means an increase in the amount of shares on the market is inevitable.

It’s a tough one.
Do I be patient and hope it’s not blind faith or do I sell now with a small profit and re-invest on less risk, blue chip, slow growing shares?

The thing stopping me is the ‘Tatts’ ticket chance of GBG paying out big one day.

Anyway, food for thought.

 

[Pat]

I sold GBG too for the same reasons DJ. Too many shares, too much capital needed, and Africa...FFS! Geeze Georgie what are you thinking? Good luck and best wishes.
I for one think buying at 60 cents was a great buy, but selling at $1.90+ would of been better, but we can't complain now can we? Take it and run! All the way to the next runner.

 

[gfresh]

Do I be patient and hope it’s not blind faith or do I sell now with a small profit and re-invest on less risk, blue chip, slow growing shares?

Like MMX? Thinking this today.. MMX is a lot further along, and already a lot of infrastructure close to being there.

FMG already nearly there.. so as you say, competition will be fierce once all this gets going. Lately it seems GBG has simply stalled. It may reverse with some a positive, but long-term holders are already losing faith. I'm definitely not so sure anymore, and sold out a couple of weeks back.

If signals can be shown that it's going to go well past $2.00 anybody can jump back in, but with the massive dillution about to kick in early 2008 - I'd be cautious. One of the great things about GBG originally (and what turned me off SDL) was the relatively low shares on offer. Now that's been shattered.

 

[dj_420]

There are also reports stating that FMG wants to ramp up production to 200 million tonnes per year. Now I think that would somewhat balance the supply demand seesaw somewhat.

I just think that GBG/SDL combined market cap of 2.4 billion is massive for a company with no earnings.

I was corrected earlier in this thread about capital costs for the Cameroon project, it is 2.46 billion, an additional 400 million is required for Karara, so a combined 2.86 billion (without cost overruns) to start significant amount of production in an iron ore boom that has been going for past several years. Of course its a given that with underinvestment this iron ore boom is set to continue but for how long?

If we do some back of envelope calculations we could say that GBG/SDL would do a placement to get their capital for production. Say a placement at $2.50 in the future, they would need at least a billion more shares, so guesstimate they had 2.5 billion shares on issue before production.

People have compared GBG/SDL to FMG. Say GBG/SDL reached the lofty heights and had a similar market cap of FMG, say 10 billion to be conservative, this would mean a sp of $4.

Some people will say they wont get the capital by raising that many shares etc etc, but how else will they do it? Sell off more resources and get Chinese smelters more of a percentage. Either way you will dilute the value to shareholders down the line.

Again people are going to argue that they will do a placement much higher than $2.50, but how is the sp going to get past that point when it already capped at 2.4 billion now with no earnings, and the sp is $1.54.

It really comes down to this, market cap no = $2.4 billion, they need an additional $2.86 billion it will come from

1 - Massive placements
2 - Selling of large percentages of resources

Obviously those calculations are very rough and only hypothesising on what could happen. I would like to see other people's opinions on this.

 

[tonza]

Can someone please confirm that the drilling results for the Lodestone prospect are well overdue? I am surprised that there is no chat regarding this as the Lodestone project supposedly has very similar geological characteristics to the Karara project. Shouldnt this be a highly anticipated announcement as it has the potential to significantly expand Gindalbie's resources? Or have i missed some important news somewhere along the way?

 

[YNKWRTNC]

Tonza,

You are correct. Late July the news from Gindalbie was that they had the upcoming BFS in August (which we saw) and the Lodestone drill results due in the September quarter. The September quarter is July to Sept and we've seen/heard nothing.
There is no reference to the announcement, upcoming or not, on the website just the info on Lodestone that has been there for a few months - see below.
You're not Robinson Crusoe looking for that announcement, many GBG holders were banking on it for another SP push along.
Frustrating and perplexing.
An update on when they expect it out would ease the tension.

This is the only info we have so far, from GBG's website:

"The Lodestone Project is a key exploration prospect located within Gindalbie’s 1,900 square kilometre exploration tenure (100% owned) in the Mid West region of Western Australia. The Lodestone Prospect is located 50km south east of the Karara Project.

Geological mapping completed during 2007 has confirmed the presence of a large Banded Iron Formation (BIF) some 6km long with a similar magnetic intensity to the Karara magnetite deposit.

Mapping has confirmed that the aeromagnetic anomaly is associated with multiple BIF units interbedded with shale across a width of 500 metres. Rock chip sampling has also encountered significant areas of hematite-goethite enrichment at surface.

A first-pass phase of drilling commenced in early July 2007 to investigate the potential of the Lodestone Project to host a Karara-style magnetite deposit (both in terms of in physical dimensions and tonnage) and also to determine the prospectivity of the area for hematite mineralization.

The prospectivity of the Lodestone Project is encouraging given the geological association and close proximity to the Mount Gibson Extension Hill and Iron Hill Prospects, located some 10km to the south."

 

[IOT]

what does this MMX takeover of MIS mean for us? Weren't MIS one of the big drivers behind the yilgarn infrastructure ... which GBG was also involved in

 

[gfresh]

My only explanation for the delay, is either they're not that good.. or my other possible was that they are delaying the news of this (and SDL results as well - just not chip samples) to closer to the end of the year. This would give a fresh favourable opinion in shareholder's minds, closer to the merger vote, and would smooth it through.

 

[imaginator]

There is another stock with the same pattern as GBG. Try looking at Atlas (AGO). It went up the same time as GBG from 0.5, now it's hit 2.2

Anyone know anymore jewels like this that we can still go in and have a good time?

 

[mas888moe]

AGO is a good one. I was thinking of selling some GBG and buying some AGO - if they come down a bit!

When are the lodestone drilling results coming out? I thought they were due in September...

 

[nikki]

there is something odd about sdl and gbg. i have never been a gbg shareholder but i am noticing that gbg is late in releasing lodestone results and sdl is overdue with data about their main samples that had gone to South Africa for testing.

i wonder if these are comming out in the quarterly reports due in october. sdl did that the last time i was expecting them to publish their surface sampling results.

 

[Out Too Soon]

I don't know much abt SDL but GBG is a great all round project. I'm like dj420 tho', I think GBGs' sp has nowhere to go for the foreseeable future. If our fickle market drops the sp tho' & I'm on the ball I will buy GBG again. (Wish I'd had spare cash in August )

 

[nikki]

Someone in the SDL thread posted the following link on the SDL website. It is the best study i have seen on it and it is post-merger. For those of you who are skeptical of the potential of the SP to go up i assume you are talking short term?

http://www.sundanceresources.com.au/...26_Sept_07.pdf.

 

[Surly]

GBG is now 2 x SDL + 4-5cents out from previous 2 x SDL +1-2cents

Any thoughts on why this gulf is growing?

cheers
Surly