Where is the mdisclosure of their payment in shares from GWG for managment services ??
- Board Resignations: Normally, mass resignations from a board tends to signal that problems exist. In this case, the resignations of GWG directors Gary Billingsley, Jim Engdahl and Bill McKnight signal that the company is transitioning from being an exploration firm to a producer. While it is unusual that a company would announce director resignations without naming replacements, we are comfortable that very strong replacements will be named shortly (no later than the beginning of 2013). We maintain our STRONG BUY rating and $2.60 target price, based on a DCF analysis incorporating our published forward-looking REO price deck and Great Western Minerals Group Ltd.'s (GWG) mine-to-market downstream product model.
- The Next Directors: Apparently search firm Korn/Ferry, active on behalf of GWG in the search for a permanent replacement to former CEO Jim Engdahl, has also put forward recommendations for board members. A number of strong candidates have been, we are told, identified and may be unveiled between now and early 2013. We would look to end-user and possibly even GWG customer involvement at the board level as a positive development.
- Other News: Interviews with CEO candidates are occurring, and the slate ranges in terms of their availability from immediate to Q1/13. We have spoken to several people who have been approached regarding their interest in the role, and who have suggested other names. Judging by the names suggested to Korn/Ferry, and perhaps as would be expected given the relative disinterest in rare earth companies by the capital markets, the slate could be a very strong one. We anticipate a recognizable and solid CEO to be named at GWG, before the end of January but likely not in the balance of 2012 given the pending Christmas season.
The company continues to believe that its anticipated PEA will be released prior to the expiration of warrants that were previously extended to December 15. Given that this PEA will likely be the first one released that incorporates the impact of a mine-to-market model, in this case the production of magnet alloys from Less Common Metals, we expect the economics to be robust. Investors should be given the opportunity to consider the PEA prior to making their decision on the exercise of the warrants.
As well, GWG is staging a tour of the new Less Common Metals facility in Birkinhead, England on November 29. We expect a number of analysts and investors to participate, with some positive sentiment emerging from the event.
- Conclusion: New industry-related directors, progress on the CEO search, the release of a robust PEA and evidence of progress in operations at GWG would all be positive. We maintain our STRONG BUY rating and $2.60 target price, based on our published REO price deck, assuming that Steenkampskraal and other sources of monazite ore allow GWG to ramp to an eventual effective output of 20,000 tonnes of TREO by 2020, and continuing emphasis on the company's mine-to-market model, involving the sale of finished, sintered magnet alloys rather than merely separated and purified REOs. Our discounted cash flow model assumes an 11% discount rate.