Take physic, pomp

Can Jaguar Mining (JAG) (JAG.to) survive?

I usually try hard to avoid using question marks in title lines but this time it’s justified, as the title really is a genuine question rather than some semantic side-step in order to avoid somebody’s legal wrath. The news of the new CEO appointment at Jaguar Mining (JAG) (JAG.to) this morning got me thinking about the company for the first time in a while, because they’ve caught a decent fish in the shape of David Petroff who comes with longtooth mining experience, peer-respected and ex-head of Breakwater who managed to sell the company to Nyrstar at a good price just before the zinc market collapsed. The fact that he’s decided to take the JAG job and try to sort out the mess that Titcomb created is interesting and that’s what begged the question up there in the title. Can JAG turn itself around? Seriously?
Here comes the brass tacks of the shitstate at JAG in chart form and the main problem is the debt load at the company:
Which is doing this to the working capital:
And because 3q12 is expected to be a loss-maker as well (we consider a slightly optimistic 26k oz Au produced at $1k/oz cash costs for 3q12 then start adjusting the P+L accordingly) working cap will likely go negative this quarter

There are plenty more charts where they came from, but we’re keeping it short today. So anyhow, that working cap is expected to be negative when the September numbers are posted which isn’t very nice, but the interesting bit is that the costs of production are dropping. As belt-tightening has now become the order of the day at JAG, we should see costs drop further in 3q12 and 4q12 as well. So if JAG can produce to the higher end of guidance in the next couple of quarters, I reckon that 4q12 could see the company post a net profit. And that’s the key here folks, because with a profitable mining operation that’s finished with fracturing the cash, JAG could go out and do some sort of corporate financing from a position that garners more confidence from the market. With just 84m shares out, JAG has never diluted too much so there’s room for an equity-based raising here so just for argument’s sake, let’s suppose that JAG can raise $150m by selling 150m shares at a buck apiece (betcha they’d want to raise at $1.50, but this is just a think-thru model for the moment). We’d end up with a company that could pay down its immediate liabilities and even the medium term ones, finish with perhaps $130m on its long-term notes debt, plenty of working capital and a 2013 that would look for perhaps 120,000 ounces produced at a modest net profit. From there it could work on its plan to get back up to 150k, which might even have a chance now that the company isn’t being run by a total failure dumbass CEO like Dan Titcomb.
So, would a JAG with 235m shares out be worth half a billion in market cap under those circumstances (that’s a $2.12 pps to you, madam/sir)? Yup, could be and that would make for a rough double from today’s prices. The key will be to stop making a net quarterly loss and start making a net quarterly profit and from there, nice things might start happening to this utter dog of a company. The bottom line; I’m going to keep a close eye on the 3q12 numbers when they show up, but I’d guess that 4q12 report will be the real do-or-die moment at JAG.

UPDATE: At the bell (while I was writing this) JAG moved up 4 spots to $1.18, but in the last few minutes the stock has really taken off and $1.28 has been printed. That’s coincidental to this post’s publishing time and very unlikely to be related, but it does indicate that other people are thinking about this new CEO appointment and probably along the same sort of lines.

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