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San Gold Corporation - Company Announcements Evaluation

San Gold Corporation - Company Announcements Evaluation

Relevant Company Announcements Evaluation as of July 1, 2014

I always learn a lot about a company by studying the information presented in the two most relevant company announcements: the company's latest investor presentation and their press release archive.

To find out which company announcements I consider as relevant, I recommend you to read the article: Management Assessment - How to Evaluate the Quality of a Company's Management.

Latest Investor Presentation

Date  Announcement  My Commentary 
May 2014  Investor Presentation 

To find out why management believes you should invest in the company, I recommend you to always study the latest company's corporate presentation yourself - before making an investment decision. Click here to see if the company recently has updated their investor presentation from May 2014.

I believe the Rice Lake Gold Belt offers great potential for the company. The company has 3.4 million ounces of high grade gold (over 5 g/t) in all resource categories, plus brownfield exploration potential.

The company announces an action plan to achieve profitability: apparently they do not generate any profit at this moment and profitability can only be reached when the implementation of management's action plan will be successful.

The first point from this action plan was to focus on the most profitable ounces. Although this might be necessary for the company to achieve profitability, I much rather like to see management reach profitability by selling average ore grades, as I expect (much) higher gold prices for the future.

The company also mentions 73.8 million in long term debt, but didn't disclose when this debt is due, what the interest payments will be and if management will be able to repay this debt. 

Relevant Press Releases

Date  Announcement  My Summary  My Commentary 
June 10, 2014  San Gold Announces Greg Gibson as CEO 

San Gold announced today that Greg Gibson has been appointed CEO. Gestur Kristjansson will continue in his current role as President. "We have made tremendous progress since March. Our new mine plan has been in place for more than a month now and we are already seeing the benefits of the strict controls that have been implemented. As CEO, I look forward to taking a more active role operationally as we continue to transform the Rice Lake Complex into a profitable producer," said Mr. Gibson. Mr. Gibson is most recently President and CEO of Kerr Mines, Chairman of Temex Resources Corp., a director of Mag Copper Ltd. and a director of SGX Resources.

I believe it's strange to announce that Mr. Kristjansson will continue in his current role as President, because the company never announced that he has been appointed as President in the first place (see the press release, dated March 18, 2014). In addition, I can conclude from Mr. Gibson's statement that the company is still trying to become profitable as of June 10, 2014. When I read that one person holds several directorships, I always wonder how committed this person is to the stock I'm analysing. I will try to answer this in my Key Management Evaluation.

May 27, 2014  San Gold Files Early Warning Report Regarding SGX Resources 

San Gold announces that it has acquired 6,351,000 common shares of SGX Resources Inc. at a deemed price of $0.05 per Common Share pursuant to a debt settlement agreement dated as of the date hereof. The Common Shares were issued in settlement of $317,550 owing by SGX to the Company. The acquisition results in the Company beneficially owning and controlling an aggregate of 43,047,256 Common Shares, representing approximately 32.1% of the issued and outstanding Common Shares. 

Two of the founding members of the company are the founding members of SGX Resources as well (Mr. Hugh Wynne and Mr. Dale Ginn). Mr. Greb Gibson, the CEO of the company, also holds a directorship at SGX. At the moment, SGX has no relevant resources in the ground. On their latest balance sheet as at March 31, 2014 I found $119,058 in current assets and $1,214,999 in current liabilities. Therefore, I believe the additional investment in SGX is a very bad investment. I consider the total ownership in SGX to be worthless.
May 12, 2014  San Gold Reports 2014 First Quarter Results  During the quarter, the Company produced 12,083 ounces of gold and recognized a quarterly loss from operations of $2.8 million and a total and comprehensive loss of $7.7 million. Exploration expenses decreased by $4.6 million and general and administrative expenses decreased by $2.2 million. Additionally, capital expenditures were reduced by $7.0 million or 37% compared with Q1 2013. These savings, however, were offset by a total reduction in revenues of $9.4 million or 39% compared with last year.  NA 
March 20, 2014  San Gold Reports 2013 Annual and Fourth Quarter Results  During the quarter, the Company recognized a non-cash impairment charge of $83.1 million resulting in a net loss of $91.7 million for the quarter and $111.3 million for the year. Excluding the impairment, the net loss was $8.6 million for the quarter and $28.2 million for the year. The reduction in the carrying value of the Company's assets reflects changes in market conditions and lower gold prices.  NA 
March 18, 2014  San Gold Appoints Kristjansson Acting CEO 

Mr. Kristjansson replaces Ian Berzins, who has served as President and Chief Executive Officer of the Company since March 2013 and as Chief Operating Officer since May 2008. While Mr. Kristjansson serves as the acting Chief Executive Officer, Mandeep Rai, the Corporate Controller of the Company, will serve as acting Chief Financial Officer. 

Why is Mr. Ian Berzins replaced and who will take over his duties as COO?

I include the following biography from my personal archive about Mr. Berzins:

"Mr. Berzins is a mining engineer with 30 years of experience in the mining industry having worked in gold, oil sands, coal and base metals. He previously held senior management positions with Sherwood Copper, Albian Sands and Suncor Energy and served as General Manager at several gold mining companies including Harmony Gold (Canada) Limited, Echo Bay Mining (Lupin Operations) and Miramar Con Mine. He is registered as a member of the Association of Professional Engineers and Geoscientists of the Province of Manitoba."

When you read Mr. Dale Ginn biography as well, you can assume that Mr. Dale Ginn and Mr. Ian Berzins have a history together, as they have both worked for some of the same companies in the past. I assume that Mr. Ginn - being the co-founder of the company - was impressed with the qualities of Mr. Berzins, wherefore he asked him to strengthen the management team at the company. 

March 10, 2014  San Gold Closes First Tranche of US$65M Private Placement 

San Gold issued US$23,750,000 senior secured convertible notes (the "Notes") at 11% for 3 years. Each Note is convertible into common shares of San Gold at the option of the holder at a price of US$0.2545 per share at any time while the Notes remain outstanding. The Notes will not be listed for trading on the exchange. In addition, San Gold entered into financial offtake agreements with each of the subscribers for Notes whereby such subscribers would receive settlement payments based on 40% of the gold production from San Gold's Rice Lake operation for a period of three years. San Gold anticipates that it will determine whether or not to seek formal approval for the second tranche of the offering in the next few months. The second tranche of the placement for an additional US$36,250,000 principal amount of Notes and US$5,000,000 of Common Shares of San Gold, is subject to various conditions, including regulatory, stock exchange and shareholder approval and San Gold's requirement for additional funds. 

This announcement comes as a complete surprise to me, considering San Gold's press release of January 23, 2014 in which no additional financing requirements where announced, nor seemed necessary. I am certainly curious how management plans to invest this money exactly and if these investments will lead to a higher return than 11% on invested capital to cover the interest charge. It's also not clear to me if the offtake agreements are settled at market prices, or if the noteholders receive a discount to market prices, or if they are settled at a predetermined price. 
February 20, 2014  San Gold Announces a 60% Increase in Mineral Reserves 

During 2013, extensive definition drilling and detailed mine planning resulted in an increase in proven and probable mineral reserves to 405,400 ounces, grading 5.24 grams per tonne. As of December 31, 2013, the total measured and indicated resources are 555,600 ounces and the total inferred resources are 2,899,200 ounces. The increase in reserves has allowed San Gold Corporation to complete five years of detailed mine planning and they expect to achieve a further increase in the mineral reserves as 2014 progresses through the conversion of the large inferred mineral resource. 

NA 
January 30, 2014  San Gold Expands New High Grade Gold Zone at Deep Rice Lake  A new zone of gold mineralization is emerging with a strike length now in excess of 400 metres and a width of more than 100 metres. This new zone is expected to be easily integrated into the existing mine plan and can be developed in the near future. Drill results included 10.6 g/t Au over 11.0 metres and 10.5 g/t Au over 6.9 metres.  NA 
January 23, 2014  San Gold Reports 2013 Production Results  The Company produced 75,218 ounces in 2013, consistent with the Company's full-year guidance of between 75,000 and 85,000 ounces. The Company is forecasting production of between 80,000 and 85,000 ounces of gold in 2014 at cash costs of $800 to $900 per ounce and capex of approximately $36 million.  Thus, conservatively assumed SGR is targeting an average gold price of at least ($36 million / 80,000 ounces =) $450 + $900 (cash costs) = $1,350 for 2014 (in Canadian dollar). 
October 17, 2013  San Gold Closes Purchase of Cougar Claims  San Gold Corporation consolidates 20 additional mineral claims (app. 3,117 hectares) with a 100% interest in the Rice Lake gold belt for a total consideration of 400,000 shares and $125,000.  NA 
September 12, 2013  San Gold Announces Closing of Private Placement Offering 

San Gold issued 32,000,000 units at a price of $0.125 per Unit for aggregate gross proceeds of $4,000,000. The Units were all purchased by Sprott Asset Management LP on behalf of various funds managed by it. Each Unit consists of one common share of San Gold and one-half of one warrant. Each whole Warrant is exercisable into one Common Share at a price of $0.18 for a period of two years from the date of issuance. Primary Capital Inc. acted as a finder for the Offering and received a finder's fee of $200,000, which was paid in Units at a deemed price of $0.125 per Unit. Accordingly, an additional 1,600,000 Common Shares and 800,000 Warrants were issued to Primary Capital Inc. 

NA 
September 11, 2013  San Gold Announces Board Changes 

San Gold Corporation announced today that its Board of Directors has appointed Mr. Bob Brennan as Chairman of the Board and has accepted the retirement announcement of Mr. Hugh Wynne from his directorship. Mr. Wynne is a founder of San Gold Resources Corporation (a predecessor to San Gold Corporation). Mr. Wynne remains a very significant shareholder of the Company and a great mentor to current directors and management. Mr. Brennan was appointed to San Gold's Board of Directors in August of 2012. 

NA 
September 03, 2013  San Gold Appoints Greg Gibson as Director 

San Gold Corporation is pleased to announce the appointment of Mr. Greg Gibson as a director of the Company, effective today. "Greg is a welcome addition to our board of directors. He has extensive industry experience with a visionary ability to identify and enhance the value of high potential mineral properties like our flagship Rice Lake Mining Complex. Greg's views on corporate strategy, especially underground gold mining in Canada, are very much in line with our own and I look forward to his contributions," said Ian Berzins, San Gold's President, CEO and Chief Operating Officer. 

NA 
July 17, 2013  San Gold Acquires Mineral Claims from Wildcat  San Gold Corporation consolidates 114 additional mineral claims (app. 17,450 hectares) with a 100% interest in the Rice Lake gold belt for a total consideration of 2,380,952 shares and $200,000 and a 2% royalty on any future production. Additionally SGR will be required to spend $100,000 per year on work commitments for the next four years.  NA 
March 25, 2013  San Gold Appoints Ian Berzins as President and CEO  Mr. Berzins replaces George Pirie, who served as President and Chief Executive Officer since December of 2010.  NA 
March 06, 2013  San Gold Announces Closing of $50 Million Offering of Convertible Debentures  The debenture bears interest of 8% per year (thus: $4 million per year, paid semi annually) and matures on March 31, 2018 or - at the holder's option - the debenture can be converted into common shares at a conversion price of C$0.50 per share.  NA 
May 01, 2012  San Gold Appoints Torben Jensen as Vice President, Corporate Development  Mr. Jensen is a mining engineer with 34 years of experience in the mining industry having worked in zinc, copper, lead, nickel, gold, silver, uranium, coal, asbestos, potash, and diamonds. Most recently, he was Vice President, Engineering, with Breakwater Resources Ltd. where he worked alongside Mr. Pirie. Mr. Jensen has also held senior management positions with Black Hawk Mining Inc. and Canadian Mine Development. His experience has ranged from on-site production engineering to senior head office engineering positions and most recently corporate development. He is registered as a member of the Association of Professional Engineers of the Province of Ontario.  NA 

My Conclusion Regarding this Company Announcements Evaluation

Based upon the information provided in the company's investor presentation and press releases, management has not convinced me to buy the company's stock at current prices. I conclude that I have too many questions left unanswered. I will ask management to comment on my commentary by email, especially regarding Mr. Ian Berzins sudden replacement.

 

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Source: http://www.sangold.ca

About Jeroen Snoeks

Jeroen Snoeks - UndervaluedEquity.com

Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for investors passionate about investing in undervalued stocks. Through UndervaluedEquity.com, he shares his experience and knowledge and will soon reveal his personal stock portfolio.


 
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