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ShareProphets Share Tips of the year Number 18 - buy Wishbone Gold says Tom Winnifrith

By Tom Winnifrith | Friday 30 December 2016

Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. 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.

You want your share tip of the year to have the potential to double or treble. You will not get that with GlaxoSmithKline (GSK). Equally it is incredibly unlikely that you might lose 75% of your cash on Glaxo. Elephants do not gallop eith forwards or backwards. My third tip of the year is a stock that could lose 75% and become a cash shell. But it is also one that could easily treble and I think he odds are on the treble not the collapse. I refer to Wishbone Gold (WSBN)

I should say that we own the shares. I should also say that I have been well miffed by a couple of placings undertaken by broker Beaufort Securities at large discounts with bucket shops taking the stock and flipping. Those placings happened in the Autumn, the shares have been digested but have left a rather nasty aftertaste.

We are however promised a trading statement soon and it is time to look forward not backwards. So what is the excitement here.

It is NOT the company's gold exploration assets in Australia. Wishbones drips some cash into them in order to make modest progress and, more importantly, to maintain its AIM status as an investment company and avoid a costly re-admission document. Who knows? Maybe it will discover something of worth here but I do not really care if it does or does not. Anything out of the land of high culture is a bonus.

The excitement is in the Black Sands gold trading business which has been running since the summer, Here are the maths once again.

Richard Poulden, the head honcho at Wishbone, has confirmed to me that breakeven point is 25 kg of gold traded a week but that he wants to increase the overhead to drive growth FROM 100kg so that breakeven point becomes 45 kg. The margin Wishbone earns on each trade is 2-4%.

So using a 3% margin on the Poulden maths, the run rate by Christmas is for a net profit ( there is no tax in Dubai where this company operates or Gibraltar where it is registered) of 3% of 55kg of gold - call that 30 grammes times 55 = 1650g which at a spot price of $42.77g works out at a profit per week of $70,571. Annualise that and one gets to $3.669 million - shall we call that £2.77 million.

Now that 100 kg target was the year end target. Do we know that Wishbone has hit that target by Christmas. We do not. But what we do know is that it was showing steady growth so is almost certainly profitable now and I am confident that the 100 kg target will be met soon if it has not been already.

If that number is reached then put the shares on a PE of 10 and you get a market cap of £28 million. And remember Wishbone wishes to burst through that 100kg number in 2017.

At 0.725p mid the fully diluted market cap is c£10 million so that gives me my double or treble upside. Of course Wishbone might miss horribly, have to do another fund raise with Beaufort, etc. Black Sands might fail altogether but we know from the last statement that it was already growing, and almost at the inflection point of profitability.

So on balance I reckon trebling rather than collapsing is likely in 2017 and thus it is my third share tip of the year and my first buy.

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