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Norseman Gold – A total Disaster But NOT a write off although in Administrator (at subsidiary level)

By Tom Winnifrith | Wednesday 3 October 2012


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


AIM and ASX listed gold Miner Norseman Gold ( NGL) has been a truly disastrous tip from me (37p in July 2009). The shares are now suspended and will remain suspended for a good while as it has just put its operating unit into administration. It sounds as if it is end game but it is not. I cannot say it is good news but do not give up the ghost yet. This is why.

The company owed A$25 to a lender called Red Kite. In the recent quarter it has not been cashflow positive (as predicted) due to acts of God (rain) but also a series of operational failings. This has always been the way at Norseman and we had hoped that a new operating company Tulla would fix this. It has not.

As such Red Kite demanded its cash. At which point other creditors demanded their cash. And so the $25 million debt to Red Kite has been taken on by Tulla (which is also the largest shareholder in Norseman). Meanwhile the operating unit (not the PLC) has been handed over to an administrator to stave off the creditors.  Having chatted at length with a senior advisor to Norseman just now there are two outcomes here.

  1. The business is being run as a going concern and intended outcome is that as the operational issues are fixed the mine starts to generate cash at which point creditors are paid down and the unit is handed back to PLC.
  2. The issues are not fixed and the administrator opts to sell it. With a vast resource, the advisers reckon that it would fetch a reasonable sum. The company does have a resource of $3.4 million ounces of gold and a full infrastructure to produce gold which sometimes works. The main creditor of Norseman’s operating unit is Norseman PLC.

Under scenario 1 the shares will resume trading at some stage. They will be knocked hard by this latest balls up but PLC has some cash and if the operations are generating cash and with the gold price rising this is not a total write off.

Under scenario 2 Norseman would have to agree a revised conversion deal with its loan note holders but would be a cash shell.  Again not a total write off but hardly the desired outcome.

At the suspension price of 2.58p the valuation of this company is c£27 million. It would be hard to envisage the option 2 scenario seeing Norseman with that much cash so there will be downside under that scenario as well.

This has been an atrocious tip from me for which I am very sorry. Successive management teams have over promised and under delivered. The potential is still there and it is just possible that under scenario one there will be material upside if Norseman can trade out and build up to hitting production levels of 70,000 oz per annum at some stage. But there are a lot of Ifs. The advisers reckon scenario 1 is the likely outcome. We shall see.

The shares will be suspended and the administrator in for a minimum of five weeks but I suspect for several months. Until then investors can only watch and wait.


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