"....i read in a earlier blog post on "incakolanews" dated back in April 30 where you discussed different copper producers and other mixed metals producers and among these you mentioned a company i`m currently invested in myself, namely "Gold Hawk Resources". I have held this stock for about a year or so and I'm not sure if you`re updated on what has happened in the last couple of months but basically their operations at the "Coricancha" mine in Peru have been suspended due to a ground displacement situation and they are currently in the works of finding a new tailing handlings area so that they can go back into production again.
I was just curious if you have any thoughts about this company and where it is heading in near future? the stockprice has taken a real hard hit as you might know and is currently trading at $0.08cents...."
Damn good question, I thought. So let's see what we can do (By the way, this is the link to my original mention).
Firstly the background. Gold Hawk Resources (CGK.v) (here's the link to the company website) is a small miner with the Coricancha mine East of Lima as its main asset (map here). It's a polymetallic mine, producing gold, silver, zinc and lead. There is a long history of mining there, and CGK took over the mine a couple of years back, refurbished the processing plant and ramped up production starting 2q07. Things didn't go as smoothly as they'd imagined in 2007, what with one thing and another, missing spare parts, delays on lead times for equipment, delays training up new staff etc etc, but at the end of 1q08 they'd finally just about got their mojo together (here's the 1q08 results PR), and by all accounts by May this year even had the important and very profitable BIOX gold circuit running to near optimum levels at long last.
Things were looking good when suddenly CGK had a very large slice of bad fortune. Its tailings dump showed signs of ground displacement, and because of the risk of wall collapse (that would have been quite the disaster for both the company and the local environment), they immediately stopped work. So the cash flow dried up, the stock price went into free fall, and as a result CGK has just recently gone to market with a placement to raise $3.3m worth of funds by selling no less than 55m shares at 6c a shot. Quite the fall from it's 30 to 50c range of last year.
It's all a bit sad, really. I like the company, and more importantly the locals around the Coricancha mine like CGK, too. In the short time Gold Hawk has been there it has turned a defunct operation that had rather shady and unloved previous owners into a working mine employing up to 600 people at international standards of work (good safety, high salaries for Peru, all the enchilada). I mean, if another less scrupulous mgmt team had been in the same situation as CGK when the tailings wall showed signs of slippage, they might have "risked it" and continued operations, but CGK has been badly castigated at market for doing the right thing.
So it's clear I have sympathy for the company. But the important thing is whether CGK can get over this run of bad luck, turn things around and make Coricancha a truly profitable mine, for their own sake, the sake of their employees and the sake of shareholders. The good news is that all is not lost. Although the stock seems to have been whacked around by some naughty shorties recently, the company first managed to get a bridging loan from one of its prime financing partners, and however horribly big the share offer is it looks like CGK will successfully get its hands on the $3.3m it needs to tide itself over. So the financial side of things is bad but not awful right now.
As for the plans to get out of this mess, there are two things to point out. Firstly, the company is building a new tailings dump that will be ready in around 16 months time (if memory serves). But until it has a place to put the tailings waste it can't start mining again. Obviously, nobody wants to wait that long to start mining and producing positive cash flow again, so right now mgmt is looking at several different ways of managing tailings in the interim so that they can start up operations again. The company didn't want to go into too much detail with me on this (cos the negotiations are ongoing and they don't want snarky dudes like me ruining things for them, I suppose), but one of the options seems to be "renting" tailings space at another company's pond. Although this sounds like a quick'n'easy solution at first light it does have environmental paperwork to do that could slow thing down, so I have to stress that right now this is just one possibility and several other ideas are being examined by the company. But it does show they're thinking, right?
So anyway, where do we stand right now? As I see it if CGK can secure the necessary financing (looks likely) and IF they can find a temporary solution to the tailings problem (perfectly possible) then the company can get back to work. And if (if if if...lots of "ifs" I know) it can get back to the 600tpd tonnage it was processing before the caca hit the ventilador and get the mine running the way it's supposed to run, by my rough reckoning they'd be churning out over 3,000oz of gold a quarter as well as over 100,000oz silver and enough lead and zinc to pay the operating costs at the mine.
So as you can see, even by this very ballpark look at things the mine has the potential to be very profitable. The share count has gone to 226m outstanding (once the placement is done and dusted), so the dilution is now a significant problem. But all the same, those kind of production figures noted above would put 1.5c as a perfectly logical quarterly EPS, and with the stock currently at 8.5c, if (if if if) CGK can pull in an annual EPS of 6c that 8.5c share price would be confined to a dark moment in the company's history.
So there you have it; a rundown of the current state of affairs at CGK. You can find more info at this link to the very latest company presentation, too (dated June 26th). I'd only like to add that I'm really rooting for CGK here, if only because they've been very good with the people in their region of Peru and the respect CGK has shown the locals has in turn won the company much respect with the people that really matter.
Or in other words, CGK is a bunch of good guys, and it'd be nice to see them get the good result that they deserve. I do think it's a buy at this level...not a doubt. However this is most definitely a high risk/high reward stock and you should not bet a dime more than you can afford to lose on a play such as CGK (hey...it's literally a penny stock...let's not delude ourselves, eh?).
But I'm going to leave you by re-printing a mail that CGK's IR guy, Jason Mercier, sent me today. He's given me permission to publish it, by the way. This gives you a bit more info about what's going on right now, and although it's biased to the positive (dude...he's a IR guy...it's his job, ok?) it's all fair comment. Have a good one, and feel free to get in contact with Jason if you have any further questions...he's a helpful dude. Tell him Otto sent you ;-).
Very good to hear from you. I have great respect for our shareholders who have been extremely patient as we work through first managing the ground displacement issue and now as we prepare next steps. A couple of large sellers have suppressed CGK’s price in the past several weeks and the current price does not reflect the enterprise value of a high-grade, narrow-vein polymetallic property with 100+ years of mining activity. One positive result has been some new shareholders and continued strong Bid volume (see the close today). We have solid labour relations, employ our miners directly and despite almost daily visits from government enviro testers over the past year, we’ve proven that this mine and operation can be run at an international environmental standard. All metallurgical issues have been sorted out and recoveries – including gold – had reached at or above target immediately prior to the May 9 announcement. The shutdown was a difficult decision but that proactive step also helped retain the company’s credibility with other stakeholders.
In addition to the “no news is good news” about ground displacement (meaning, it has slowed significantly and the geotechs advise minimal risk at this point), the key pieces of information to glean about CGK at the moment:
1.. Our US $2.0 MM Bridge announced early June was with Auramet out of NYC. Auramet did their own due diligence and is one of our two primary lenders. So, financial support from an existing lender that not only understands the mining industry and our company but is backed by geotechnical data. Good.
2.. Our discussions with government Ministry of Energy and Mines has so far borne fruit with an agreement to use an accelerated process in establishing a new long-term tailings area at Chinchan, 30kms from our plant by rail (and note that the empty cars returning from the coast rumble right through our plant/tailings area). A clearer future and government understanding and cooperation. Also good.
3.. Private placement underway is expected to close soon. This shows continued support in the investment community. More good.
Next steps: We are working our way through discussions that involves a number of stakeholders, and although we have driven much of the information gathering to date to argue the case, we cannot fully control a process that involves local farmers (and an irrigation system that pumped up 40,000-litres/day onto the hill above our plant), Ministry of Energy and Mines, Ministry of Agriculture, Ministry of Transportation, the main railway running to the interior from Lima and serving mostly industrial users, all area municipal governments, the Rimac River (a drinking water supply) and its various stewards. And maybe the hydro utility across the river. There is risk but the company has shown that it is capable of managing the risk so far and has taken the right action.
The news flow – including a timeline and budgets once the estimates are in hand – will continue and we are taking the necessary steps that will lead to the company going back to production. Stay tuned.
Gold Hawk Resources Inc. (TSXV:CGK)
T: +1 604-689-9282, ext.103
F: +1 604-689-9232