San Gold Corporation (TSX: SGR; OTCQX: SGRCF) is a junior gold producer in the Rice Lake Greenstone Belt, in Manitoba, Canada - producing between 75.000 and 85.000 ounces of gold in the past three years. Its current resource base consists of 555,600 measured and indicated ounces of gold (of which 405,400 oz Au are in the proven and probable category) and an additional inferred resource of 2.4 million ounces of gold. In addition, the company has control over a 400 square kilometers land package in this prospective gold belt, which offers a lot of brownfield exploration potential for expanding the current resource base.
On January 23, 2014 the company announced that its forecasting production of between 80,000 and 85,000 ounces of gold in 2014, at cash costs of $800 to $900 per ounce and capex of approximately $36 million. Thus, conservatively assumed the company is targeting an average gold price of at least ($36 million / 80,000 ounces =) $450 + $900 (cash costs) = $1,350 for 2014 (in Canadian dollar), which seemed quite realistic to me.
On March 10, the company issued US$23,750,000 senior secured convertible notes at 11% for 3 years, while considering a second tranche for an additional US$36,250,000 of notes and US$5,000,000 of common shares. Each note is convertible into common shares of the company at the option of the holder at a price of US$0.2545 per share. This announcement came as a complete surprise to me, considering San Gold's press release of January 23, 2014 in which no additional financing requirements where announced, nor seemed necessary. I am certainly curious how management plans to invest this money exactly and if these investments will lead to a higher return than 11% on invested capital to cover the interest charge. When I asked management to clarify this, they didn't respond to my questions which caused me to doubt about my investment in the company even more.
On March 18, the company announced that Mr. Gestur Kristjansson, the company's former CFO, replaced Mr. Ian Berzins, who has served as President and Chief Executive Officer of the Company since March 2013 and as Chief Operating Officer since May 2008. While Mr. Kristjansson serves as the acting Chief Executive Officer, Mr. Mandeep Rai, the Corporate Controller of the Company, will serve as acting Chief Financial Officer. This announcement also came as a complete surprise to me, as the company didn't disclose why Mr. Berzins has been replaced and who will take over his duties as COO. Again, management wasn't willing to clarify this when I asked them for an explanation.
When I interpreted management's unwillingness to respond to my questions in conjunction with their insider ownership, I concluded that - except for Mr. Dale Ginn - management's interest is not aligned with those of the common shareholders. From the 373,390,981 common shares outstanding, only 1,807,864 of those shares are owned by the corporate insiders. And from this 0.5% ownership 1,356,140 shares are controlled by Mr. Ginn, one of the founders of the company.
As management decided not to respond to the questions in my email, in which I announced my stock investment analysis report, I sold my complete position in the company for 0.15, which resulted in a loss of 0.015 per share. I immediately reinvested the proceeds of the sale into another stock of my stock portfolio. In my opinion, this stock is the most interesting exploration company listed on the Canadian exchanges and in this stock management's interest is aligned with those of the common shareholders.
Although I do believe the Rice Lake Gold Belt offers great potential, I will not invest in San Gold Corporation as long as the current management team is in place - or until current management convinces me that their interests are aligned with those of the common shareholders and their attitude towards them has positively changed.
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