Frank Holmes and his U.S. Global Investors own about 12% of its shares
Gran Colombia Gold (TSX: T.GCM, Stock Forum), one of our TCR 8 target investments, looks to group its shares in a 1-for-25 consolidation. The company just published the proxy item for its annual general meeting, to be held in Toronto the final day of May.
At the current price, that means 25 times approximately 18 cents, or $3.50. In these "reverse splits," more often than not, as the folklore goes, the newly consolidated shares sell down in their first few weeks of trading. I say folklore because this is not always the case.
GCM's sister company, Pacific Coal (TSX: V.PAK, Stock Forum), did a share consolidation recently at $1.26. The shares in Canada trading are several weeks later at $1.30.
Roy Macdonald, the talking-head of investor relations at Gran Colombia in Toronto, is knighted as the fellow who gets to hold shareholders' hands -- usually via phone or Skype -- when such dramatic events as these occur. Lucky for me, as a consultant to Torrey Hills Capital, I got to see Roy in person last week at one of his California presentations. (See previous TCR reports from last week, April 22-29.)
Mr. Macdonald declined to hold my hand after we greeted each other, and I his. Neigh-neigh, we agreed. Mr. Macdonald was traveling without his professional assistants, 26-somethings Jessika Angarita and Tabitha Navratil. "Alas," said I ... [Editor: TC, that is quite enough.]
At least a dozen investors at different California meetings were concerned about the low nominal share price and the high number of shares.
"On my recent trip to California with THC, we had some passionate, unsolicited feedback recommending that we consolidate our shares … sub-$1 pricing leads to high volatility (thus, a $0.01 change moves the stock 5%)," Mr. Macdonald said.
Low nominal prices of equities (nearly every one of our TCR select 8) can lead to high volatility levels, which attracts short-term traders looking for pops. Banks, mutual funds, some hedge funds, trusts and so on tend to avoid penny stocks. Frank Holmes and his U.S. Global Investors in Texas (GROW in USA) owns about 12 percent of GCM shares, and I believe some of Gran Colombia's silver-linked and gold-linked notes. (The August 2018 silver notes, which rely on silver produced at GCM's El Marmato, now sell for 56 cents or so on the dollar. See prospectus. They trade in Canada.)
I have no reason to believe Mr. Holmes' Texas asset management shop, its public shares also pulverized and near their lowest point since late 2008 or something, is on the "ask," as they say when investors are selling their stakes.
This stock split stuff is not my cup of coconut water, as our TCR family knows. If Gran Colombia continues to reduce costs at Segovia, thus increasing its free cash flow, the stock will go higher. If Gran Colmbia had met its early promises of reducing gold mining costs at Segovia, one of two mines it has in Colombia, well, in this 27-month dumpster market for metals equities, the shares likely would be at 25 cents right now, not 17 cents.
I believe GCM's team at Segovia will get the all-in cost of producing an ounce of Segovia gold to as low as $900 from approx. $1,200 now. We saw improvement in Q1 and we will see improvement in Q2. But if I keep saying that like one more time, I will become the boy who cries into his coconut water too many times and is bonked on the head by a meaty coconut dead-dropped from a Colombia military cargo plane.
GCM has almost 400 million common shares, and much more than that if one accounts for options and warrants. I have no idea if the company will seek to raise $20 million with this share consolidation, which is subject to shareholder approval. I have asked the principals and await a response.
Thus far, there are no indications that GCM will try to raise capital. I will stick to my coconut water and say that Gran Colombia will not need capital this year and next if the gold price stays above $1,400 and if it continues to reduce operating costs at Segovia without hitting speed humps, including power outages, bad-guy shoot-em-ups or delays in the building of its new-age Pampa Verde mill.
But then, I am not a banker. The old saying used to be, You Raise Money When You Can and not When You Need To. These days, with the financing market shot to high holy Hades, I have conflicted feelings about any "raise." [Please see recent TCR on Gold Standard Ventures.]
The new Colombia national mining code that will take effect [see: Meet The New Code, Same As The Old 2010 Code in TCR] on May 11 has zero effect on any mill and mine permits at Segovia, the company says.
I am taking some guff for my coverage of Gran Colombia. I can understand that. Still, if you believe as much as I do in Colombia as the best and now cheapest gold jurisdiction in South America, you have to own its largest precious metals producer.
For more on the group-on shrinkage factor, see GCM's annual general meeting details at http://grancolombiagold.com/investors/2013-AGM-Meeting-Materials/default.aspx.
Derby Day: It is always the first Saturday of each May in Kentucky. This year, as always, there are lots of human-interest stories around the thoroughbred horse race.
I wanted to pass along the top two "picks" from a Southern California friend of mine, Glenn Cutler. Glenn is a former money manager and, aside from the fact that our political leanings are on opposite sides of the overhanging cliffs of the Grand Canyon, he is salt of the earth. I have known Glenn since I was a business reporter at a newspaper in Rochester, NY, in the mid-1980s. Maybe earlier.
Glenn and I are both from the guyland of Long Island, which includes Brooklyn, Queens, Nassau and Suffolk counties. Those are in New Yawk. The bridge that connects Brooklyn's Bay Ridge neigh (borhood) to Staten Island is named after the explorer Verrazano, an Italian explorer. More importantly, the gorgeous bridge is featured in the film Saturday Night Fever (1977). "Hey Tony, look at me all wacked out hanging on these cables, ain't I somebody, huh Tony huh?"
A-hem. These are Glenn's top two below. Mr. Cutler nailed the last three Derbys, and his advice helped me to at least three meaty coconut paydays: a big one at the Belmont Stakes on Long Island like 10 years ago; one at Del Mar, not far from the Torrey Hills Capital shop down there near San Diego; and one at one of the Breeders Cups, I believe at Hollywood Park one autumn, those oilers pumping away in the infield of the Inglewood, Los Angeles, track. Not to mention several great days (i.e., winning day$) at Golden Gate Fields and Santa Anita race tracks, both in California.
Verrazano is a 4-to-1 favorite on the early line; once again, not my cup of coconut water unless you can bridge him in a 1-2 exacta or other exotic wager. Perhaps better, with thus far a guaranteed return of capital and heady interest rate, are those silver notes. I love Glenn's other choice, Normandy Invasion, at 9 to 1. No telling what these odds will be on race day. (Normandy Invasion's dam, or mother, is Boston Lady.)
5 Normandy Invasion - "... late runner has just 1 W but gained to inside 1 length of Verrazano in Wood Memorial at Belmont, and the Derby's added distance a big plus," says Mr. Cutler. (Photo attached of Normandy Invasion)
14 Verrazano -- "... perfect 4 for 4 always with lead turning for home, trying to be 1st derby winner in 100 years+ to not run as a 2-year-old."
That is all for now. With any luck, I'll hit twice this weekend: Normandy Invasion and then, the right to purchase one of those $85 Rolling Stones tickets for the Sunday Oakland, CA, show. Neigh ... hey Tony ...
THE CALANDRA REPORT: Subscribe
Thom Calandra lives in California. He owns all of the TCR select 8, including GCM. Thom's shares are all purchased in the open market. He receives no direct compensation from any of the companies in TCR in exchange for his research, and certainly not his opinions. In addition, Thom is a consultant to Torrey Hills Capital. One of the TCR 8 is a full-fledged Torrey Hills client for investor outreach services: Gran Colombia Gold. Thom is pondering a purchase of GCM's silver denominated notes cited above.