Crocodile Gold CRK
December 15, 2011 - 10:00am EST by
john771
2011 2012
Price: 0.48 EPS $0.00 $0.07
Shares Out. (in M): 310 P/E NA 6.3x
Market Cap (in $M): 149 P/FCF 0.0x 4.7x
Net Debt (in $M): -49 EBIT 0 24
TEV ($): 100 TEV/EBIT 0.0x 4.0x

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Description

Crocodile Gold (CRK) operates a mill in Australia's Northern Territories and controls 33 nearby deposits with documented resources. Production from new underground mines beginning in 2012 should generate consistent high cash flow.

 

On December 13th a large independent shareholder, Luxor Capital Group, declared an intention to make a tender offer for up to 218mm shares of CRK at a price of $0.56/share. If the maximum number of shares are tendered then 15% would still remain in public hands. I believe that the offer significantly undervalues the company and therefore I am posting this idea as a value investment on a one-year horizon rather than an arbitrage.

 

BASIC FACTS

 

 

Symbol

TSE:CRK

OTCBB:CROCF

Basic Shares Outstanding

310.0 million

Options

3.17mm at $0.20

0.08mm at $0.38

 

16.4mm out-of-the-money with strike prices from C$0.70-C$2.24

Warrants

69.5mm at strikes of $1.00 and above

Market Cap

US$144mm (C$0.48/share)

Average Daily Volume

1,058,017 shares (last 3 months)

Net Cash

US$49mm ($0.16/share)

Enterprise Value

US$95mm

Gold Reserves

662,000 ounces

Gold Resources

5,294,200 ounces

Steady State Cash Flow (4Q12)

$62mm/year

Major Shareholders

Luxor Capital 48mm shares

Resolute Funds 44mm shares

Insiders 25mm shares

Website

http://www.crocgold.com/

Investor Contacts

Investor Relations – Rob Hopkins

Tel: 416-861-5899

info@crocgold.com

 

CEO – Chantal Lavoie

Tel: 416-861-2964

clavoie@crocgold.com

 

HISTORY

 

Production has occurred on CRK's properties for over 140 years. In 1994 Acacia Resources built the Union Reefs mill and expanded it in 1998. Nearby mining ceased in 2003 and the mill was sold in 2004 for $4mm to a joint venture that was later acquired by GBS Gold. GBS Gold went bankrupt in 2008 and Crocodile Gold was formed by Stan Bharti's Forbes & Manhattan merchant banking group to acquire the mill and all surrounding leases for a series of payments totaling $51mm. CRK has since invested an additional $115mm on exploration, capital improvements, and mine development. CRK's current enterprise value is a discount of 43% to the amount the company has invested in the region (EV=$95mm compared to investment of $166mm).

 

OUTLOOK

 

Despite the region's abundant gold resources, each operator (including CRK) struggled to make money in a high cost jurisdiction from the relatively low grade surface deposits (1-1.5 g/t). CRK's future plan is based on these elements (extensive documentation is available in the Technical Report filed in April)

 

  • Union Reefs Mill. While performance of the surface mines has been weak, the mill has been operating quite well. Throughput in the most recent quarter was a record 559,447 tonnes (about 6% above target) and metallurgical recoveries of 92.8% were also above their 90% target.

  • Surface Mines. CRK's properties contain a very large amount of ore with a grade under 1.5 g/t and exploration could probably grow this resource substantially, but the net value of all that gold is marginal. Each individual deposit has different grade and cost considerations, but I think the example below fairly represents the weak returns:

 

Grade

1.4 g/t

Dilution

10%

Recovery

90%

Revenues ($1600 gold)

$58/t

Cash Operating Cost

$48/t

Operating Margin

$10/t

 

 

Restarting production from past producing pits often disappoints because past operators already mined the best rock. Crocodile's basic production in 2011 has come from open pit mines in the Burnside area, about 80km North of the mill. This ore is easily accessed, but low grade and costly to haul to the mill. In early 2012 Crocodile hopes to reopen the “International” pit at Pine Creek, just 15km from the mill. International has slightly better grade and the shorter haul will cut transport costs. But the net present value of all Crocodile's open pit operation is low unless the future price of gold rises significantly more than future production costs (fuel, equipment, and labor).

  • Underground mines. Newly developed underground mines will provide higher grade ore that will allow the mill to produce more gold without any increase in throughput. The higher grade allows a bigger profit margin and operations will be less vulnerable to cost inflation. Crocodile's “Cosmo” mine will enter production in 1Q12 and should reach full capacity by 4Q12. Exploration has identified a strong target for a similar underground mine at the Crosscourse site close the mill. Crocodile hopes to drive an exploration decline there in 2012 and could begin production in late 2013. I think the example below fairly represents the superior returns available from the new underground deposits (note that the Technical Report and company projections are more optimistic about every input except grade):

 

 

Grade

4.5 g/t

Dilution

15%

Recovery

90%

Revenues ($1600 gold)

$177/t

Cash Operating Cost

$95/t

Operating Margin

$82/t

 

These underground deposits are previously unmined and CRK will be able to access above average ore early in order to maximize the present value of cash flow. The underground operations will also be much less vulnerable to wet season weather disruptions.

 

To summarize, the mill is operating well. The underground mines will generate significant value and may grow significantly over time as new deposits are identified and developed. Surface operations will provide ore to fill the mill's remaining capacity after the underground ore.

2012 PRODUCTION

 

2012 will be a transition year. Cosmo will gradually ramp up production from 500 tonnes per day in the first quarter to 2000 tonnes per day in the fourth quarter. The balance of the mill's 6000 tonne per day capacity will be filled by open pit ore from the Burnside complex, the International Pit near Pine Creek following regulatory approvals, and stockpiled Burnside ore during 1Q wet season disruptions. I project Cash Flow from Mining Operations:

 

1Q

$3mm

2Q

$8mm

3Q

$14mm

4Q

$18mm

 

VALUATION

 

Annual Mine Cash Flow from 4Q12

$72mm

Corporate Overhead

$10mm

Operating Cash Flow

$62mm

Valuation Multiple (long-life production with significant growth potential)

5X

Target Enterprise Value

$310mm

Net Cash

$49mm

Target Equity Value

$261mm

Shares

310mm

4Q12 Target Price per share

C$0.87

 

If Luxor's offer proceeds as currently intended then shareholders have an opportunity to realize an arbitrage profit of 15% within three months. Or they may prefer to continue holding for possible appreciation of 80% if my projections are correct.

 

PAST DISAPPOINTMENTS

 

Crocodile management made unrealistic forecasts about production and profitability that proved to be wildly out of line with the actual performance from the marginal surface mines. I expressed my skepticism about the company after it was recommended on this site at a price of $1.42:

 

The company over-promised.  15 months ago they forecast 200,000 ounces of production in 2011 at a cash cost of $500/oz.  Last year they were talking about future annual production of 500,000 ounces from a 10 million ounce resource.  The company presentation included an underground river of gold from Cosmo to Howley that was simply geological speculation without confirmation from drilling results.  The story whispered to investors was that the stock would soar once drilling conformed this resource.  Actual results have been mixed.  Some good and plenty of marginal, not bad, but marginal.  It will take time and money to prove whether or not this is going to work.”

 

Time has passed. Money was spent. The Technical Report provided a very useful independent review of all the company's assets and potential. The CEO was replaced by a new manager who seems quite competent. The business plan now appears simpler and more easily obtainable. And the share price is now quite cheap compared to the potential that always existed.

 

2011 results were poor and even seemed to deteriorate as the year progressed. The average grade of open pit ore in 3Q11 was only 1.1 g/t which provided barely enough gold to cover cash operating costs. But most of the 3Q ore was mined from the Mottrams pit which only has a resource grade of 1.2 g/t. And page 69 of the Technical Report has a table showing that there has always been some monthly variation between the projected ore grade and the actual mine results. Perhaps the low grade in 3Q was simple a result of this normal variability. Or perhaps ore cannot be profitably mined from Mottrams. The important thing is that Mottrams doesn't matter. Crocodile's real value will be generated by the new underground operations. I was told that 3Q costs were higher than normal due to a much higher than average stripping ratio, a common variable factor in mine operations. Maybe that's true and maybe it isn't. The important thing is that the stripping ratio for the Mottrams pit (and Princess Louise) doesn't matter. Crocodile's real value will be generated by the new underground operations. Commencement of underground operations was slightly delayed but I see that as within the normal range of disappointment for mine startups. And this morning's news explains that the delay has been resolved.

 

 

 

LUXOR

 

Luxor Capital has been a major shareholder of Crocodile Gold since it was formed as a private company in 2009. Luxor probably acquired a significant number of shares in the March 2009 placement at $0.20 and the June 2009 placement at $0.70. Luxor appears to have had a good working relationship with the Forbes & Manhattan group, including pre-IPO investments in Black Iron and Forbes  Manhattan Coal. Luxor was also a significant shareholder of Consolidated Thompson Iron Mines which was a huge success, rising from $3/share in early 2007 until its acquisition by Cliffs Natural for $17.25/share earlier this year.

 

Luxor's declaration of intent to tender for CRK shares expressed no opinion about the company or its management. I suspect that Luxor sees the value that I described above and is not looking to significantly alter the future business plan. I suspect they see an opportunity to take advantage of recent price weakness caused by short-term factors that have little impact on the company's long-term valuation.

 

Crocodile Gold has formed a “Special Committee” to evaluate Luxor's offer and any other alternatives available to the company. I doubt there will be a competing offer due to the company's small size and weak recent results. Chinese buyers have recently been acquiring underperforming assets at bargain prices (e.g. Gold One, Daylight Energy, and Jaguar Mining), but I suspect they would not enter a bidding war. I suspect that the true independence of the Special Committee may be compromised by Luxor's other relationships with the Forbes & Manhattan Group. I suspect the Committee may ultimately make no recommendation and take no steps to hinder Luxor's acquisition of between 50% and 85% of CRK. I suspect that Luxor would be happy to invest at $0.56 and then look to reduce its stake after CRK has established additional high grade production in 2014.

 

Luxor's bid is likely to require approval by the Australia's Foreign Investment Review Board, but that is unlikely to be a problem.

 

RISKS

 

1. Disappointing startup performance at the new Cosmo mine (tonnage or grade)

2. Ongoing disappointment at the old surface mines

3. Manipulation by Luxor Capital (either they don't follow through with their intended offer or they complete the offer and then disadvantage minority shareholders)

4. Price of Gold

 

 

 

 

Catalyst

1) Rising production and profitability from high grade underground mines
2) Partial tender offer by Luxor Capital
    sort by    

    Description

    Crocodile Gold (CRK) operates a mill in Australia's Northern Territories and controls 33 nearby deposits with documented resources. Production from new underground mines beginning in 2012 should generate consistent high cash flow.

     

    On December 13th a large independent shareholder, Luxor Capital Group, declared an intention to make a tender offer for up to 218mm shares of CRK at a price of $0.56/share. If the maximum number of shares are tendered then 15% would still remain in public hands. I believe that the offer significantly undervalues the company and therefore I am posting this idea as a value investment on a one-year horizon rather than an arbitrage.

     

    BASIC FACTS

     

     

    Symbol

    TSE:CRK

    OTCBB:CROCF

    Basic Shares Outstanding

    310.0 million

    Options

    3.17mm at $0.20

    0.08mm at $0.38

     

    16.4mm out-of-the-money with strike prices from C$0.70-C$2.24

    Warrants

    69.5mm at strikes of $1.00 and above

    Market Cap

    US$144mm (C$0.48/share)

    Average Daily Volume

    1,058,017 shares (last 3 months)

    Net Cash

    US$49mm ($0.16/share)

    Enterprise Value

    US$95mm

    Gold Reserves

    662,000 ounces

    Gold Resources

    5,294,200 ounces

    Steady State Cash Flow (4Q12)

    $62mm/year

    Major Shareholders

    Luxor Capital 48mm shares

    Resolute Funds 44mm shares

    Insiders 25mm shares

    Website

    http://www.crocgold.com/

    Investor Contacts

    Investor Relations – Rob Hopkins

    Tel: 416-861-5899

    info@crocgold.com

     

    CEO – Chantal Lavoie

    Tel: 416-861-2964

    clavoie@crocgold.com

     

    HISTORY

     

    Production has occurred on CRK's properties for over 140 years. In 1994 Acacia Resources built the Union Reefs mill and expanded it in 1998. Nearby mining ceased in 2003 and the mill was sold in 2004 for $4mm to a joint venture that was later acquired by GBS Gold. GBS Gold went bankrupt in 2008 and Crocodile Gold was formed by Stan Bharti's Forbes & Manhattan merchant banking group to acquire the mill and all surrounding leases for a series of payments totaling $51mm. CRK has since invested an additional $115mm on exploration, capital improvements, and mine development. CRK's current enterprise value is a discount of 43% to the amount the company has invested in the region (EV=$95mm compared to investment of $166mm).

     

    OUTLOOK

     

    Despite the region's abundant gold resources, each operator (including CRK) struggled to make money in a high cost jurisdiction from the relatively low grade surface deposits (1-1.5 g/t). CRK's future plan is based on these elements (extensive documentation is available in the Technical Report filed in April)

     

    • Union Reefs Mill. While performance of the surface mines has been weak, the mill has been operating quite well. Throughput in the most recent quarter was a record 559,447 tonnes (about 6% above target) and metallurgical recoveries of 92.8% were also above their 90% target.

    • Surface Mines. CRK's properties contain a very large amount of ore with a grade under 1.5 g/t and exploration could probably grow this resource substantially, but the net value of all that gold is marginal. Each individual deposit has different grade and cost considerations, but I think the example below fairly represents the weak returns:

     

    Grade

    1.4 g/t

    Dilution

    10%

    Recovery

    90%

    Revenues ($1600 gold)

    $58/t

    Cash Operating Cost

    $48/t

    Operating Margin

    $10/t

     

     

    Restarting production from past producing pits often disappoints because past operators already mined the best rock. Crocodile's basic production in 2011 has come from open pit mines in the Burnside area, about 80km North of the mill. This ore is easily accessed, but low grade and costly to haul to the mill. In early 2012 Crocodile hopes to reopen the “International” pit at Pine Creek, just 15km from the mill. International has slightly better grade and the shorter haul will cut transport costs. But the net present value of all Crocodile's open pit operation is low unless the future price of gold rises significantly more than future production costs (fuel, equipment, and labor).

    • Underground mines. Newly developed underground mines will provide higher grade ore that will allow the mill to produce more gold without any increase in throughput. The higher grade allows a bigger profit margin and operations will be less vulnerable to cost inflation. Crocodile's “Cosmo” mine will enter production in 1Q12 and should reach full capacity by 4Q12. Exploration has identified a strong target for a similar underground mine at the Crosscourse site close the mill. Crocodile hopes to drive an exploration decline there in 2012 and could begin production in late 2013. I think the example below fairly represents the superior returns available from the new underground deposits (note that the Technical Report and company projections are more optimistic about every input except grade):

     

     

    Grade

    4.5 g/t

    Dilution

    15%

    Recovery

    90%

    Revenues ($1600 gold)

    $177/t

    Cash Operating Cost

    $95/t

    Operating Margin

    $82/t

     

    These underground deposits are previously unmined and CRK will be able to access above average ore early in order to maximize the present value of cash flow. The underground operations will also be much less vulnerable to wet season weather disruptions.

     

    To summarize, the mill is operating well. The underground mines will generate significant value and may grow significantly over time as new deposits are identified and developed. Surface operations will provide ore to fill the mill's remaining capacity after the underground ore.

    2012 PRODUCTION

     

    2012 will be a transition year. Cosmo will gradually ramp up production from 500 tonnes per day in the first quarter to 2000 tonnes per day in the fourth quarter. The balance of the mill's 6000 tonne per day capacity will be filled by open pit ore from the Burnside complex, the International Pit near Pine Creek following regulatory approvals, and stockpiled Burnside ore during 1Q wet season disruptions. I project Cash Flow from Mining Operations:

     

    1Q

    $3mm

    2Q

    $8mm

    3Q

    $14mm

    4Q

    $18mm

     

    VALUATION

     

    Annual Mine Cash Flow from 4Q12

    $72mm

    Corporate Overhead

    $10mm

    Operating Cash Flow

    $62mm

    Valuation Multiple (long-life production with significant growth potential)

    5X

    Target Enterprise Value

    $310mm

    Net Cash

    $49mm

    Target Equity Value

    $261mm

    Shares

    310mm

    4Q12 Target Price per share

    C$0.87

     

    If Luxor's offer proceeds as currently intended then shareholders have an opportunity to realize an arbitrage profit of 15% within three months. Or they may prefer to continue holding for possible appreciation of 80% if my projections are correct.

     

    PAST DISAPPOINTMENTS

     

    Crocodile management made unrealistic forecasts about production and profitability that proved to be wildly out of line with the actual performance from the marginal surface mines. I expressed my skepticism about the company after it was recommended on this site at a price of $1.42:

     

    The company over-promised.  15 months ago they forecast 200,000 ounces of production in 2011 at a cash cost of $500/oz.  Last year they were talking about future annual production of 500,000 ounces from a 10 million ounce resource.  The company presentation included an underground river of gold from Cosmo to Howley that was simply geological speculation without confirmation from drilling results.  The story whispered to investors was that the stock would soar once drilling conformed this resource.  Actual results have been mixed.  Some good and plenty of marginal, not bad, but marginal.  It will take time and money to prove whether or not this is going to work.”

     

    Time has passed. Money was spent. The Technical Report provided a very useful independent review of all the company's assets and potential. The CEO was replaced by a new manager who seems quite competent. The business plan now appears simpler and more easily obtainable. And the share price is now quite cheap compared to the potential that always existed.

     

    2011 results were poor and even seemed to deteriorate as the year progressed. The average grade of open pit ore in 3Q11 was only 1.1 g/t which provided barely enough gold to cover cash operating costs. But most of the 3Q ore was mined from the Mottrams pit which only has a resource grade of 1.2 g/t. And page 69 of the Technical Report has a table showing that there has always been some monthly variation between the projected ore grade and the actual mine results. Perhaps the low grade in 3Q was simple a result of this normal variability. Or perhaps ore cannot be profitably mined from Mottrams. The important thing is that Mottrams doesn't matter. Crocodile's real value will be generated by the new underground operations. I was told that 3Q costs were higher than normal due to a much higher than average stripping ratio, a common variable factor in mine operations. Maybe that's true and maybe it isn't. The important thing is that the stripping ratio for the Mottrams pit (and Princess Louise) doesn't matter. Crocodile's real value will be generated by the new underground operations. Commencement of underground operations was slightly delayed but I see that as within the normal range of disappointment for mine startups. And this morning's news explains that the delay has been resolved.

     

     

     

    LUXOR

     

    Luxor Capital has been a major shareholder of Crocodile Gold since it was formed as a private company in 2009. Luxor probably acquired a significant number of shares in the March 2009 placement at $0.20 and the June 2009 placement at $0.70. Luxor appears to have had a good working relationship with the Forbes & Manhattan group, including pre-IPO investments in Black Iron and Forbes  Manhattan Coal. Luxor was also a significant shareholder of Consolidated Thompson Iron Mines which was a huge success, rising from $3/share in early 2007 until its acquisition by Cliffs Natural for $17.25/share earlier this year.

     

    Luxor's declaration of intent to tender for CRK shares expressed no opinion about the company or its management. I suspect that Luxor sees the value that I described above and is not looking to significantly alter the future business plan. I suspect they see an opportunity to take advantage of recent price weakness caused by short-term factors that have little impact on the company's long-term valuation.

     

    Crocodile Gold has formed a “Special Committee” to evaluate Luxor's offer and any other alternatives available to the company. I doubt there will be a competing offer due to the company's small size and weak recent results. Chinese buyers have recently been acquiring underperforming assets at bargain prices (e.g. Gold One, Daylight Energy, and Jaguar Mining), but I suspect they would not enter a bidding war. I suspect that the true independence of the Special Committee may be compromised by Luxor's other relationships with the Forbes & Manhattan Group. I suspect the Committee may ultimately make no recommendation and take no steps to hinder Luxor's acquisition of between 50% and 85% of CRK. I suspect that Luxor would be happy to invest at $0.56 and then look to reduce its stake after CRK has established additional high grade production in 2014.

     

    Luxor's bid is likely to require approval by the Australia's Foreign Investment Review Board, but that is unlikely to be a problem.

     

    RISKS

     

    1. Disappointing startup performance at the new Cosmo mine (tonnage or grade)

    2. Ongoing disappointment at the old surface mines

    3. Manipulation by Luxor Capital (either they don't follow through with their intended offer or they complete the offer and then disadvantage minority shareholders)

    4. Price of Gold

     

     

     

     

    Catalyst

    1) Rising production and profitability from high grade underground mines
    2) Partial tender offer by Luxor Capital

    Messages


    SubjectMath Error!
    Entry12/15/2011 03:22 PM
    Memberjohn771
       
       
       
       
       

    SubjectMath error in your favor!
    Entry12/15/2011 03:25 PM
    Memberjohn771
    Sorry, I was in a hurry to post the idea after the tender news.  My table significantly understated the fair value of the shares.  Corrected numbers below:
     

    Target Enterprise Value

    $310mm

    Net Cash

    $49mm

    Target Equity Value

    $359mm

    Shares

    310mm

    4Q12 Target Price per share

    C$1.15


    SubjectInsider selling?
    Entry12/15/2011 03:33 PM
    Memberbroncos727
    Any idea which insider is selling?
     
    from the TSX website, report for 12/14:
     
    Top 10 Stocks By Net Sells Volume
    SymbolCompany NameInsider Buys VolumeInsider Sells VolumeNet Sells Volume
    CRK Crocodile Gold Corp. 0 3,463,000 3,463,000

     

     

    SubjectRE: Insider selling?
    Entry12/15/2011 03:42 PM
    Memberjohn771
    Those TMX marker reports include large fund holders that have no affiliation with the issuer.  Resolute Funds made a SEDAR filing on 12/2 showing they had reduced their position.  They may have continued selling.  Corporate insiders (see SEDI records) have only bought in 2011.  My guess is that the corporate insiders do not want to  tender at $0.56.
     
    If somebody has a huge loss on CRK then it may make sense for them to realize the guaranteed benefit of the tax loss rather than holding for the potential benefit of the rebound.

    SubjectRE: questions
    Entry12/15/2011 06:59 PM
    Memberjohn771
    Great questions
     
    1) Dividend.  Unlikely.  The company has significant potential to grow its resource base through exploration.  The company hopes to develop new underground operations at Crosscourse and possibly at the "Prospect" site.  Page 10 of the company presentation has a bullet point at the beginning of 2014 labelled "Decision".  At that point the company will consider building a second mill amid the Burnside projects in order to increase production capacity and reduce/eliminate haulage. 
     
    2) Capex.  From the annual report: "Repairs and maintenance of property, plant and equipment are expensed as
    incurred. Costs incurred to enhance the service potential of plant and equipment are capitalized and depreciated over the remaining useful life of the improved asset."  Actual dollars expensed on maintainance of  existing operations should be low (under $5mm/yr - I will try to confirm this with the company).  I estimate that the company will spend all of its cash flow to grow its resources and future production.
     
    3) Gold Hedge.  Many companies tried this, but ended up with hedged revenues and unhedged expenses.  The cost of mine equipment (copper and steel), energy (oil), and labor has tended to move in sync with the price of gold.  I closed half my personal gold hedge this week.  The weakness certainly became uncomfortable, but with RSI at 27, it feels risky to be short.  I believe the long-term factors supporting gold remain in place.  Many major economies currently have negative real interest rates.  Lasting doubt has been cast on the value of sovereign obligations.  Most of the nations that have been accumulating wealth (China, Japan, Saudi Arabia, Taiwan, Korea, Hong Kong, Singapore, Thailand, Malaysia, Norway etc...) have very low gold reserves.  The current price decline is a welcome opportunity for them.
     
    4) Hedge.  As above, I don't think this is a good time to hedge gold.  I would rather pick a quality company and size the position with knowledge that its value is sensitive to the price of gold.  Gold stocks have performed terribly this year and I can't think of any that appear expensive, except perhaps some flaky stuff like GORO where the value is hard to discern.  But for the most part hedging would mean buying one stock at 50% of fair value and shorting another at 70% of fair value.  I would rather pick a quality company and size the position with an understanding of its risks.

    SubjectCircular Filed
    Entry12/23/2011 09:37 AM
    Memberjohn771
    At first glance I don't see any big surprises.  Luxor explains:
     
    "PLANS FOR CROCODILE GOLD
    Except as disclosed in the Offer and Circular, the Luxor Group has no current plans or proposals which would relate to or result in material changes in the affairs of Crocodile Gold, including any proposal to liquidate Crocodile Gold, to sell, lease or exchange all or a substantial part of its assets, to amalgamate it with any other business organization or to make any material change in its business, corporate structure (debt or equity), management or personnel. If the Offer is successful, the Luxor Group intends to review the current composition of Crocodile Gold’s board of directors and, upon such review, may seek to add to or change the current composition of the board at a future date in a manner that maintains appropriate board independence. The Luxor Group is supportive of Crocodile Gold’s management, and does not currently expect to pursue any material changes in the management of Crocodile Gold if the Offer is successful."
     
    And Luxor warns:

    "The Luxor Group also believes that Shareholders face certain risks if the Offer is not successfully completed, including:
     
    Dilution Risk. Based on publicly available information, the Luxor Group believes that in order for
    Crocodile Gold to proceed with both its Cosmo and Union Reefs projects in 2012, Crocodile Gold will
    require approximately $20 to $25 million of additional financing, assuming a $1,500 gold price (with its
    cash needs increasing at lower gold prices). The Luxor Group believes that Crocodile Gold is currently
    limited in its financing sources and that, if the Offer is not successfully completed, it is likely that such
    capital would be raised through an equity financing at a price that would be highly dilutive to existing
    Shareholders. The Luxor Group believes that it may be able to assist Crocodile Gold in broadening its
    access to equity and debt capital.

    Disinterested Large Shareholder. If the Offer is successfully completed, the Luxor Group is committed to
    taking steps that it believes will increase the value of Crocodile Gold. However, if the Offer is not
    successfully completed, the Luxor Group will be unable to dedicate the significant time and resources
    required to enhance the value of Crocodile Gold given the size of its current investment relative to its funds under management (approximately US$4.5 billion as of November 30, 2011). If the Offer is not
    successfully completed, the Luxor Group does not intend to undertake such efforts and intends to review its existing investment in Crocodile Gold."
     
    I disagree about the dilution risk because I believe the comapny will be able to operate within its current resources plus 2012 cash flow.  Additional spending would only be at the discretion of management and subject to availablity of funding.
    PLANS FOR CROCODILE GOLD
    Except as disclosed in the Offer and Circular, the Luxor Group has no current plans or proposals which would
    relate to or result in material changes in the affairs of Crocodile Gold, including any proposal to liquidate Crocodile
    Gold, to sell, lease or exchange all or a substantial part of its assets, to amalgamate it with any other business
    organization or to make any material change in its business, corporate structure (debt or equity), management or
    personnel. If the Offer is successful, the Luxor Group intends to review the current composition of Crocodile
    Gold’s board of directors and, upon such review, may seek to add to or change the current composition of the board
    at a future date in a manner that maintains appropriate board independence. The Luxor Group is supportive of
    Crocodile Gold’s management, and does not currently expect to pursue any material changes in the management of
    Crocodile Gold if the Offer is successful.

    SubjectRE: RE: Circular Filed
    Entry12/23/2011 10:02 AM
    Memberjohn771
    At this time my intention is not to participate in the offer and to continue holding shares.  Luxor is offering to acquire a maximum of 85% of the shares (and the tender requires a minimum of 50%).  The balance would remaining outstanding and publicly traded.  However, at the time that I posted the write-up I expected that the short-term arbitrage opportunity would have been appealing to some members.  I will reassess my own intentions as new information becomes available.

    SubjectRE: RE: RE: RE: Circular Filed
    Entry01/10/2012 09:50 AM
    Memberjohn771
    Many interesting elements to consider.
     
    I believe fair value is $1.15 as noted in my comment #2 (correcting a simple math error in the write-up).  I think most analyst estimates are higher (for example, Raymond James calculates NAV of $1.53).  I think a strategic buyer would be expected to pay at least $1/share to reflect the value of future expansion to a second underground mine with potential similar to Cosmo.
     
    But Luxor is a financial buyer and would only be interested in investing at a substantial discount to fair value.  The current offer to acquire 50-85% of the shares may be designed to avoid paying a "control Premium".  And it allows shareholders who are unhappy about the price to maintain their investment. 
     
    Luxor's Circular shows that it acquired 350000 shares in September at $0.69.  The amount is not meaningful, but obviously they thought the fair value was above that price.
     
    Crocodile insiders spent over $3mm buying shares in the past year, largely through participation in the March 2011 offering at $1.05.
     
    Clues about Luxor's relations with minority partners may be provided by the history of Palladon Ventures (profiled 4 times on VIC).  In that case Luxor owns 78% of a project and the public company owns 22%.  It appears to me that Luxor has not done anything to disadvantage the public holders.
     
    Crocodile's circular mentions: "Crocodile Gold is negotiating the terms of the Luxor Offer with the Luxor Group, and continues to explore acquisition opportunities that could expand its production profile".  An acquisition by CRK would probably be a really dumb idea and serve as a poison pill.
     
    If a higher price can be negotiated with Luxor (($0.65-$0.75) then I see a possibility that the board permits the offer to proceed without expressing an opinion about the fairness of the price.  I think it would be hard for the Board to endorse a price under $0.80 as fair.
     
    Luxor is only seeking 50%.  They own 16% already.  Resolute owned 9% at the end of December and showed itself to be a willing seller below $0.56.  Centaurus Capital has revealed itself as holder of 8% clearly stating that ll were acquired after Luxor's announcement.  Those three stakes could put Luxor at 33% and it would only need one quarter of the remaining shares in order to reach its 50% threshold.  I suspect that could be achieved without a big bump in the price due to Crocodile's disappointing performance in 2010-2011.  And I suspect that the Board may not aggressively resist Luxor's offer due to past and present relationships between Luxor and Forbes & Manhattan Group companies.

    SubjectRE: RE: RE: RE: RE: RE: Circular Filed
    Entry01/19/2012 09:12 AM
    Memberjohn771
    I am not going to tender at $0.56, but some news is likely to come before any decision is required.
     
    Turnover since Luxor's bid was announced has been 81 million shares.  That's 25% of shares outstanding, or 31% of the shares not held by Luxor.  Two large stakes have been disclosed, Centaurus at 8% and MM at 6%.
     
    I think most investors believe $0.56 is too low and the bid is unlikely to reach the 50% requirement at that price.  I have not seen any positive analyst comments about the bid. Raymond James said:
     
    "Action
    We recommend shareholders do not tender their shares. We reiterate our
    Outperform rating and target price of $1.30 per fd share.
     
    Analysis
    The offer of $0.56 cash per fd share represents a 65% premium on yesterday’s
    closing price of $0.34 per share. We believe this undervalues Crocodile’s assets
    as they continue to make progress at the 100% owned Cosmo underground
    facility which we expect to be in production in 3Q12. Although we believe 4Q11
    and 1Q12 will be difficult quarters due to the annual rainy season and the
    company’s open pit operations, we believe Cosmo offers a bright future."

    I think acceptances could cross 50% if Luxor paid $0.65-$0.70.  If they want 85% then the price would have to be closer to $1.
     
    If the offer were successful at $0.56 then I would consider it moderately positive for continuing shareholders. 

    SubjectRE: Guidance
    Entry01/27/2012 09:32 AM
    Memberjohn771
    Guidance is somewhat worse than I expected.  My model worked out to 94105 ounces at a cash cost of $1317/ounce.
     
    However, I only modelled 42771 Cosmo ounces vs new guidance of 50000-60000.  This suggests that Cosmo is working out as planned.
     
    On the other hand, I modelled 51334 open pit ounces (40786 from Burnside and 10548 from Pine Creek) vs new guidance that implies only about 25000 ounces.  It appears that the company has been conservative in not including the Pine Creek production until permits are received.  It appears that management has made a discretionary decision to limit the low margin Burnside production.
     
    It will require further investigation, but I think the details are not as disappointing as the headline.
     
     

    SubjectRE: Author Exit Recommendation
    Entry02/07/2012 09:11 AM
    Memberjohn771
    As explained in my previous message, I decided to tender over 50% of my shares and then monitor developments.  I hope that I will have an opportunity to buy more shares at a lower price.

    SubjectRE: update? - john771?
    Entry01/08/2013 02:20 PM
    Membermajic06
    trying again.  thanks.
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