GBG - Gindalbie Metals

Pros
That in the medium and long term exposure to the ASX200 is a good thing.
Complimentary business locations and products
Output rivalling or exceeding FMG

Cons
That the further dilution that will take place to raise the funds for the Mbalam project is a bad thing and the 1.2bn shares plus however many more may mean the price per share in the short and medium term will not be as strong as GBG may of been had they gone it alone.
That the project at Mbalam is not yet at PFS stage

...and the selection of other strong midwest players as an alternative.

DYOR

cheers
Surly

Hi Surly, why are you of two minds?

My only hesitation is that sdl is still a highly speculative stock as long as the results of the drilling programme are outstanding and no feasibility study has been completed.

Having said that, one reason why the GBG/SDL merger would be debt free is because SDL has upwards of $95 million (more than 4/5 of the total money that the merged company will have) which it has received through major shareholder backing.

Look at SDL's shareholder backing compared to GBG - especially important given that they came after visits to cameroon by the geologist of AMCI and Talbot himself. etc. etc. etc.

Even without GBG it is very easy to forsee SDL's price moving above $1 by the end of this year once PFS reports are published. If GBG does not do well in terms of result from its other mine, etc. I think it will drag the heels on the movement of price.

I am actually not sure why SDL needs GBG given how easily and quickly it raised over $100 for its PFS and its FS. Look at the iron ore project near where sdl's main site is in Cameroon. It is as big as FMG and has had as much financial backing.

Surly said:

Pros
That in the medium and long term exposure to the ASX200 is a good thing.
Complimentary business locations and products
Output rivalling or exceeding FMG

Cons
That the further dilution that will take place to raise the funds for the Mbalam project is a bad thing and the 1.2bn shares plus however many more may mean the price per share in the short and medium term will not be as strong as GBG may of been had they gone it alone.
That the project at Mbalam is not yet at PFS stage

...and the selection of other strong midwest players as an alternative.

DYOR

cheers
Surly

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Did they explain the tax treatment of SDL shareholder who decide to participate in this merger as my understanding is they might have to sell their share and buy back into GBG generating a CGT

Fab said:

Did they explain the tax treatment of SDL shareholder who decide to participate in this merger as my understanding is they might have to sell their share and buy back into GBG generating a CGT

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The issue of cgt wasn't mentioned but a phone call to my accountant would be my approach.

cheers
Surly

I have been watching GBG and SDL share price over the last two days and it appears that GBG is almost always 2 x SDL plus a couple of cents.

Any thoughts on why this would be?

cheers
Surly

Surly said:

I have been watching GBG and SDL share price over the last two days and it appears that GBG is almost always 2 x SDL plus a couple of cents.

Any thoughts on why this would be?

cheers
Surly

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Since the merger will probably go through then the price of these 2 will be around the 2 to1 ratio

s3081402 said:

Since the merger will probably go through then the price of these 2 will be around the 2 to1 ratio

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It was the ongoing couple of cents that had me confused not the two to one ratio due to the merger.

cheers
Surly

Surly said:

It was the ongoing couple of cents that had me confused not the two to one ratio due to the merger.

cheers
Surly

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Well u cant have exactly the same price for the 2 so a few cents either way wouldnt be of any concern

springhill said:

What an absolute pile of tripe, u GBG holders should get over how great your resource is, check out page 7 of the shareholders meeting, kinda puts things in perspective hey? U may be lucky its only 2:1 Hope this works!!

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Great post Springhill ...... everybody should have a good look at the potential production growth chart on page 7 of the GBG Shareholders Meeting 26 Sept 2007 document. This certainly does put the size of the GBG / SDL ore resources in perspective.

A few points to note:
* GBG to start iron ore production in 2009 from Mungada Hematite project
* GBG's Karara project to come on stream with production starting in 2010
* SDL's Mbalam Hematite project to begin production in 2011
* By 2012, the merged company would be producing in the order of 35 Mtpa with SDL's Mbalam project contributing a little over half of this
* From 2012 to 2015, iron ore production for the merged company continues to increase to a level of approx 60 Mtpa
* SDL's Mbalam project alone is expected to contribute over half of the iron ore production (taking into account both the Mungada & Karara GBG projects) from 2012 to 2015

I'm no expert (and please post if i have overlooked something), but any GBG holder thinking they are getting a raw deal by merging with Sundance must have rocks in their head IMHO........i don't think it takes too much to see the potential of this new merged GBG/SDL iron ore producer ..... and the value that SDL brings to GBG........ bring it on!!

I have mixed feelings on this deal, dont like the African touch at all. Going from 500 million shares to 1.43 billion thats not good either. I would have rather WA midwest be GBG's focus. And yeah, yeah I know its going to be big come 7 years time but theres way too may unknowns in Cameroon and the small research I've done on the region doesn't paint a pretty picture. At the end of the day I imagine George has done his home work, but I'm not kidding myself in thinking this will be FMG Mk2, not with 1.43 billion shares in the market.

Surly said:

It was the ongoing couple of cents that had me confused not the two to one ratio due to the merger.

cheers
Surly

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May be to cover tax. +
Check golfmos123 post the page before

Frankhalo said:

I have mixed feelings on this deal, dont like the African touch at all. Going from 500 million shares to 1.43 billion thats not good either. I would have rather WA midwest be GBG's focus. And yeah, yeah I know its going to be big come 7 years time but theres way too may unknowns in Cameroon and the small research I've done on the region doesn't paint a pretty picture. At the end of the day I imagine George has done his home work, but I'm not kidding myself in thinking this will be FMG Mk2, not with 1.43 billion shares in the market.

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I don't get why gbg/sdl can't be a FMG Mk2. Its the market cap that counts not the shares on issue. From all reports, Cameroon is shaping up to be comparable to whatever FMG has and operating costs will be cheaper than Aust. If SDL can come up with an offtake party between now and Feb 08 it will only sweeten the deal.

Folks

I have reproduced an extract from Mining News

Karara remains top priority: Gindalbie

Kate Haycock
Friday, 28 September 2007

THE 1.4 billion tonne Karara deposit is the premier magnetite project in Australia, according to Gindalbie Metals, which will soon become the second-largest pure iron ore play in the country after its merger with Sundance Resources.

I also noticed that the talks of GBG/SDL becoming a large house producing 45 MTPA by 2014.
Please do remember by then RTIO will have 300 MTPA and BHPB will also ahve 250 MTPA capacity and Chinese Tiger will not be as hungry as today. Adding to that there are small to medium Chinese holdings will only be bigger and a possible takeover of FMG by Chinese enterpreurers.

What it means the negotiation power will be far more reduced by the Australian producers.
I will be hopefully retiring by then any way.

Regards

Here is what the Eureka report says :

"Today we have seen GBG make a bid for SDL, which is actually twice as big.
Now the bid is all scrip and it’s one GBG share for every 2 SDL shares. The market is pricing the merger in, GBG is down 3% and SL is up 9%. In a situation like this there is no premium in it for the possibility of another bidder. If you buy into this you are just buying into GBG."

Sounds like the deal is a good one for GBG not sure is so good for SDL also the lack of another bidder is not so good either but that might change.
I noticed that SDL is twice as big as GBG so why participate in this deal if you are a SDL shareholder?

Also what happens to SDL shareholder if they don't accept the offer from GBG and the merger still goes through?

So what do people think will happen with GBG & SDL in the short to medium term future is there much growth left until some real action takes place.. I am holding both but think now might be the time to sell and re -enter is six to twelve months..

adobee said:

So what do people think will happen with GBG & SDL in the short to medium term future is there much growth left until some real action takes place.. I am holding both but think now might be the time to sell and re -enter is six to twelve months..

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If you are holding with a capital gain why sell & pay tax. Also, you run the risk of missing the next upward cycle. Also, whilst undoubetdly a long way off a savvy investor (not me) in this stock that I spoke to this morning indicated that the long-term sp has been nominated @$15 by his broker.

I am a long term investor in this stock and think that it would be crazy to liquidate a position of say $30k now when it might turn into $300k with time

I feel the merger is good. GBG/SDL will be placed in top 120 on current sp, and can improve further after expected results between now and Feb. Watch announcements for significant shareholders in coming months, these could indicate what the big boys and girls think. I hold GBG and expect both sp to fluctuate around current levels until exploration results are announced and/or BHP-RIO agreement on prices with Asia. The downsides are; results below expectation, merger does not go ahead, or extenal pressure (US?). Recent small volumes appear to indicate a move by smaller holders to younger explorers, they might get it right but imho GBG/SDL has considerable upside and now carries less risk.
Archer

IMO the merger has not added any value to GBG. The proposed merger will create a company with 2.4 billion market cap. Now excuse me for saying so but that is a massive market cap for a company with no earnings whatsoever.

Now everyone is going to tell me but look at the size of the resources GBG and SDL have. Yes combined they have a huge resource portfolio and if they achieve the desired output will be producing 60 million tonnes in 2015. Now 2015 is a long way off and many other companies will be producing their iron ore long before that stage.

IMO what will happen by 2015 is a flood of iron ore on the market completely squashing the spot price. The iron ore price is well above historical averages so in response business increase output to cope with demand. What we have here has been massive increases in spot price and many many businesses increasing output or beginning output by 2008 onwards.

I would like to see an analysts viewpoint on how much additional iron ore is going to be loaded onto the market from 2010 onwards. FMG want to add 60 million tonnes per year from next year alone.

I have seen people argue, but business wont do that, its not in their best interest to flood the market with iron ore. But from BHP point of view, if they dont do it, someone else will, they may as well take advantage of the higher spot while its there. Thats my main point "while its there". The majors that have been producing iron ore for a long time can afford to flood the market as they are able to operate with good profits when the spot price was well below what it is now.

It is the typical resource cycle, years of underinvestment, boom follows, years of overinvestment, bust cycle follows.

Does anyone recall when BHP almost went under in late 90's? Thats because they made some takeovers at the top of the cycle, paying a massive premium for miners and mines which only a couple of short years later would not be profitable to run causing billions of dollars in writedowns.

So in the GBG case they are already operating on some fairly tight margins and assuming the spot stays high. If the spot falls 50-100% from here say 2010 will many of these new Australian iron ore companies still be able to produce profitably?

Disc: No longer holding GBG

Good post DJ.
I worked for BHP right through the 90's and saw first hand the situation you described- resources companies being 'one step behind' the market. Unfortunately with the way resource companies work, it is hard to properly line up supply with demand and so avoid the boom/bust cycling. This is difficult enough for large companies, let alone start-ups.
In receiving my Argo Investments Annual Report recently, I noted that the only small-mid iron ore play that Argo holds is Mount Gibson Iron.
Argo is an investment company with a long term view so I like to note their shareholdings as a barometer of where long-term value lies in the market.

Disc- still holding GBG for the moment.

Looking beyond 2010 I guess we really need to ask how much iron ore does China really need, for Ansteel to have jumped on board so early on in the scheme of things I imagine they have done there figures and homework. As too GBG with there up and coming merge with SDL. I said it before, its one thing having billions of tons of the iron ore in the ground its another digging it up and shipping it, if your shipping 60 million tons per year plus your doing very well, these are the big boys figures. So IMPO in a couple of years time GBG+SDL merged will stand tall, demand / supply ratio will still be well in tack and favor the supplier for a long time to come.

Regards

Frank