Monday, April 11, 2011

Am I Crazy?

With 2010 results released and share price in the toilets, I am planning to add to my CMM holdings in a big way in the next few days. Before you automatically dismiss me as being on crack, please read my reasoning below and give me constructive feedback:

The biggest risk to buying CMM shares now rather than two weeks ago is obviously the loss of various important shareholder rights following the record date. New shares bought after the record date no longer carry the right to vote and, more importantly, dissent. So why buy now?

I believe CMM is a wonderful buying opportunity now because we've already been hit with Finskiy's best shot and we're still standing. The broken crusher & Peru tailings dispute were designed to shake out the loose hands and make the company appear in dire financial straits. All loose hands have now been shaken... any further negative catalysts before the meeting date would likely alarm securities regulators and start an investigation on share price manipulation. Thanks to the $7.6mm from warrant exercise, our debt problems have effectively been solved (very important piece of information that we just learned on Monday). As a result, I think this is as low as the stock can go in the near term (i.e. next 3 months).

Now let's look at the upside. Even if you ignore the possibility of a sweetened bid or a white knight bid (best case scenario), CMM shares at this price look very attractive even assuming the current merger proposal gets approved. Think about it this way. The new corporation will produce 140k oz of gold per year within the next next half a year at a cash cost of ~$600/oz. Comparable, well capitalized, TSX listed companies are worth $1 billion. With a share price of $0.445, CMM shareholders are basically implying that WTG shares are worth $1.11 (0.445 / 0.4 = 1.11). At $1.11/share, the new combined corporation will have a ridiculously undervalued market cap of $320mm ((471 * 0.4 + 100) * 1.11). Yes, under this scenario, you will have to get in bed with the Russian, which means you may be subject to more ambush (cuz we don't know what he's truly thinking)... but please understand that YOU ARE ALREADY IN BED WITH THE RUSSIAN... the guy owns 40% of CMM.

So, in summary, what I'm trying to say is that at this price, CMM has limited downside and excellent upside... if the bid gets sweetened or if there's a white knight bid, then GREAT! Having more shares at this price makes it a lot more profitable to tender to a white knight bid of $0.90. Otherwise, even if this current merger gets approved, your downside would be limited since the current share price implies that the new combined corporation is worth $320mm... which is ridiculously undervalued. By saying undervalued, I'm assuming Finskiy doesn't destroy shareholder value anymore... which is obviously a big question mark.


PayDay said...

I believe you are right about CMM prospects looking good.....unless WTG/CMM merge is only Part 1 of greater plan to roll this into Polyus or Intergeo.

Then what is to stop the same shit from happeniing know the drill.

No cash. Problems with Lamaque. San Juan ministry snooping around....and don't forget to add lazy russian workers can't get the Salvinko gold out now too!

Lots of negative news to go around if Finksky wants to hold WTG back as part of a larger package to present to his boss Prohorov.

There is only one chance to give the finger to the Russians and that's NOW (May 12). After that they can do anything they want with Finksky majority s/h and localle in BVI.

Wingfong said...

Buying at this juncture has a possible advantage. Suppose Fin is not 100% sure he has the 66.66% n 51% yes shares in the first n second round of votings. What he can do is to run up the sp between now till 11 May to entice retailers (those who bought before the no voting right dead line) to sell off so as to reduce the quantity of voting shares. Of course some of these shares may be from yes voters n not necessarily from NO voters so he has to judge. Further, it will cause him some money too.