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12/6/17

Core Gold (CGLD.v): Avoid like the plague (from IKN446)

This in last Sunday's edition of the Weekly

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Core Gold (CGLD.v): Avoid like the plague
Like a bad penny, it turns up again. Once called Dynasty Metals and Mining (ex-DMM.to), the Ecuador gold producer is now named Core Gold (CGLD.v) and is under new management, headed up by one Keith Piggott (last seen turning Goldgroup Mining’s (GGA.to) share price from dollars to pennies after ruining the Caballo Blanco project in Veracruz). Last week we got two piece of news from CGLD, the first being very flashy trenching results on Thursday from its ‘Linderos’ exploration project (21) including 21m of 18.51 g/t gold. This was enough to pop the stock on Friday morning, but once the close came CGLD gave us its second piece of news (22), that it was taking out a U$15m debt facility as well as selling another 4.33m shares at 30c a shot. Talk about not hanging around! Talk about coincidental timing!

I was also impressed with what CGLD plans to do with the $15m loan it expects to close at the end of 1q18 (nearly four months? Rather weird). After earmarking U$4.5m to pay off its current due loan to Vertex (accruing at a 16% interest rate and half of it already two months past due date) plus another $0.5m for fees, it plans to spend $4m upgrading its production facility (even though the real plant bottleneck is the fact it can’t get its rock out the ground quick enough) and another $6m on “Corporate development initiatives and general working capital including exploration”, a happy catch-all for “whatever we like, stop asking questions”. So let’s see how an extra $15m in debt (at a 12% interest rate) would fit into its current balance sheet:




As at 3q17 CGLD was running a working cap deficit of $16.731m (even worse when you consider most of its current assets are run-of-company inventories). This has been boosted by a recent $3.5m placement (at 30c) so it does have a little more money now, but operations are still breakeven at best and are certain to stay that way, because the lion’s share of the money it owes is to its own workers and suppliers. That’s aside from the other liability line items which are mostly financial debts owed to several entities (Vertex first in line).

The proposed $15m debt deal is, therefore, a refi that simply adds more onto an already creaking balance sheet. Its liquidity and working cap problem isn’t suddenly going to go away (if the workers hear about a millionaire stash of cash they’ll want their repayment…or else) and anyone buying this stock today is betting on trenching results. From this company and track record.

With 106.8m shares out and a 34c share price before Friday’s raising announcement (which if fully taken would bring the count to 111.1m S/O), CGLD is currently valued at CAD$36.33m by the market which is approximately $36m more than its true value. Now that of course does not preclude the potential for this stock to move higher on some kind of promo push by the company and/or market voices, but the combination of the wealth destroyer known as Keith Piggott in charge and the money pit known as Elipe SA in Ecuador is more than enough for any serious investor. Run away from this deal and don’t ever look back, there are literally hundreds of better opportunities in this market no matter how good the veins under those trenches turn out to be. Or if you don’t believe me, try taking a hint from the ex-CEO of Core (when it was called Dynasty) Robert Washer, who has diligently sold 270,000 of his large share pile into the open market in the last six weeks. He has lots more too, so don’t let him sell them to you.