IKN

Win us with honest trifles

Gold Mountain (GMTN.to) and the Gotcha

One day, the golf club pro was approached by one of the older club members, who said, “Hey there! I will bet you a thousand dollars I can beat you in a round of golf today. No handicapping either, a straight shot-to-shot competition, all you need to do is give me two “Gotchas”.” The club pro readily agreed, no matter that he didn’t really understand what a Gotcha was. So on the first tee, just as the pro was addressing the ball and about to hit his drive, the old guy came up behind him and whacked him hard between the legs with a 5 iron, shouting GOTCHA! as he did so.
 
Come the end of the round and the old guy won. The pro had played terribly and his pals wanted to know what had gone wrong and how he’d lost $1,000. After all, they said, he only had two Gotchas and he’d already used one on the very first tee. To which the pro explained, “Yeah, but you try playing a round of golf waiting for the second Gotcha.”

It’s not the first time this old golfing joke has appeared on these pages, but it’s apt considering the circumstances. Here’s a chart of Gold Mountain (GMTN.to) since the time it graduated from the TSX Venture exchange and became a fully fledged Dot Tee Oh, a little over six months ago:

That GMTN got a passing mention on these pages back in early December due to its sharp sell-off is neither here nor there, but FWIW the issue mentioned at the time was on the perils of going straight to production on the back of a PEA level geological and economic study. Despite that and due at least in part to the stock picking up (the increasingly dreaded) social media support GMTN rallied into 2022, broke back above $1.50 and had established a trading range around the $1.40 level. Healthy enough trading and with decent volume, as proponents talked up its on-track production schedule, good drill assay NRs and how its announced plan to bootstrap through to positive free cash flow and then higher production in 2023 and beyond. Then came the price breakdown, caused by this announcement on the morning of April 13th:

Gold Mountain Announces $12.0 Million Bought Deal Public Offering

The bot deal, priced at $1.25 and came with a half warrant, then went to this announced that same afternoon:

Gold Mountain Announces Increase in Bought Deal Public Offering to $18.5 Million

This isn’t the first time GMTN has run a bought deal and indeed, the one back in July 2021 while the company was still on the TSXV was also successfully upsized. However this time the deal happened 1) while they had cash treasury 2) after starting production and sales from Elk and 3) most importantly, going on social media and telling the fanclub that they wouldn’t raise again now that the cash was flowing. Hence the golfing yarn, above. From what this desk gathers, its management team is not of the nefarious type and truly thought it would be advantageous to all stakeholders to take this deal, the old Vancouver adage “When they offer you money, take it” must have been part of the pitch. Their sin was stupidity, the decision of managerial greenhorns who, by agreeing to a capital raise at the wrong moment (and upsizing it, oh my stars), opened the door to the wolves and cordially invited them into the front parlor for tea and cake. Combine that with a slice of unlucky market timing and here we are, with even the bought deal takers now steaming with annoyance. As for the holders who were at $1.40 two weeks ago and dreaming of the riches to come, well…ask one yourself as for the record, this post was inspired by a GMTN long writing in to this desk on Tuesday and venting.

Nobody wants to hear those tiresome “Trades Wot I Has Won With” spiels from a trader and even less from this desk, IKN is annoying enough as it is. However your humble scribe will indulge for a few lines today because there’s a lesson here somewhere. Back in the 2017-20 period while riding a trade in Wesdome (WDO.to) from around the $2.00 level to price maturity (sold half for under $8 in 2019, the rest for above $14 in 2020) and as WDO CEO Duncan Middlemiss may or may not remember, my oft-repeated question to him was whether he was being offered financings from those nice brokerage people and whether he was going to take them up on their nice kind offers. After all, CEO Middlemiss was embarking on the impressive feat of improving Eagle River production at the same time as developing the deep vein discovery at Kiena, so a chunky raise at any point in the process would have been useful cash to take pressure from cash flow and may have allowed plans to mature more quickly. His repeated answer to my questioning for over two years was “Yes, being offered constantly” and “No way I say yes”, though CEO Middlemiss is more of a gentleman than I’ll ever be and would phrase his replies more elegantly. It was one of the main reasons I stayed the course until the trade matured, being sick to death as I am of brokerages digging their claws into companies, also tired of junior CEOs boasting of how their market cap has doubled and tripled over the years, all while their share prices flatline. These days I prefer to sponsor my own lifestyle and those of the people I like, rather than those of suited brokers or fatcat mining bosses.

Here, GMTN has done the opposite and is now paying the price of not being run by a seasoned and worldly-wise boss who didn’t need to learn the hard way. The Middlemisses of this sector know what happens to your share price when you say one thing then do another, especially when short positions are built against your stock during a financing. GMTN management may have had the best interests of stakeholders at heart when agreeing to that bought deal, even when they agreed on the upsizing, but ignorance is not a defence in Capital Markets, this was a dumb move that has ruined the trust they were building. The good news is that while the loss of trust is serious, it’s not an irretrievable situation. GMTN now has extra work to do, but the fans will return if they 1) don’t repeat the error 2) deliver on plans and get shorts to think twice about remaining active and 3) make real profits going forward. Good operating results and the simple lure of money being made can win back the fan club and get the share price moving again, but in the meantime woe betide GMTN if they whack retail between the legs with another Gotcha.

5 Comments

    A Beaten Down Prospectors Cabin In The Woods The Deep Dark Woods of British Columbia 29/04/22 6:17 am

    Another diluter watering down their retail base is TSXV:GSHR …..

    https://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=CA%3AGSHR&insttype=Stock

    Reply
    A Beaten Down Prospectors Cabin In The Woods The Deep Dark Woods of British Columbia 29/04/22 7:21 am

    Insights on dilution pollution …..

    https://youtu.be/1onUXU-tD4Q?t=779

    Reply

    You must have known I placed a buy order for a small position @.92 this a.m. Spidey senses are still working Mark!

    Reply

    You must have known I put in a buy order this a.m. for a small position @.92-see if it fills? Your Spidey senses are still working!

    Reply

    Aside from the mountain of red ink these guys printing at historically high CAD gold prices big issue I see is they limited by mining permit to producing less than 200tpd or 70kt per year so gold production upside very limited vs. WA jpeers with market cap in same ballpark. Also processing is controlled by new gold. What happen if new gold decide not to renew current toll milling contract at end of term? In such scenario how do gold mountain monetize its muck?

    Reply

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