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Tanzanian Royalty Exploration: Fool’s Gold The stock has gained over 350% from a 2008 low

Discussion in 'Jukwaa la Siasa' started by nngu007, Jun 10, 2011.

  1. nngu007

    nngu007 JF-Expert Member

    Jun 10, 2011
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    [h=1][/h]By In2EastAfrica - Fri Jun 10, 4:45 pm


    The rising tide of gold prices has lifted the market value of Tanzanian Royalty Exploration (TRE) to ridiculous levels. The stock has gained over 350% from a 2008 low of under $2 to a current price of around $6.90 There are 94 million shares outstanding, giving the company a market cap of $650 million. That is a tremendous market cap for a company that has less than $50 million of assets.

    Tanzanian Royalty Exploration is a Canadian company listed on the NYSE Alternet under the symbol TRE (changing to TRX on June 15th), and on the Toronto Stock Exchange symbol TNX. The company explores for gold in Tanzania Africa.

    While I don’t really have an opinion about the ultimate level of the price of gold, I think that the speculative bubble in exploration stocks will burst, and this stock will be headed to $0. The company is a serial issuer of stock and has no revenue. By virtue of accounting treatments for exploration companies that allow exploration costs to be capitalized rather than expensed, Tanzanian Royalty Exploration has an artificially inflated book value of about C$0.35 per share. That gives the company a price-to-book ratio of around 20. After adjusting for capitalized exploration costs, I estimate the real book value to be zero.

    The business model is quite simple: Sell stock, use the cash for corporate overhead, capitalize exploration costs, repeat. Typically, the company sells stock at a discount in privately negotiated transactions to senior executives or third parties. Those purchasers then unload the stock over time at market prices. For the fiscal year 2010, the company raised C$5.5 million from equity and convertible debt issuance. The conversion price on the debt was an average of C$4.40, while the stock price on the respective issuance dates was C$4.80 and C$5.50. The issue price for the stock was C$2.71 per share, significantly below the market price. On February 1 the company announced that it had sold $4 million worth of stock priced at a 15% discount to market and paid a finder’s fee in stock of 8.5%. In and of itself, this is a very expensive method of raising capital.

    The company uses the cash it receives to fund overhead and exploration. Digging deeper (after all this is a mining company), the overhead is exorbitant with respect to the size of the company. However, access to the public markets is necessary to keep the bubble inflated. Without funds for additional exploration, the company would have to abandon the exploration projects and incur a significant asset writedown. On a cash basis the company spent C$2.5 million on salaries and corporate overhead and C$3.3 million on exploration, with the exploration costs capitalized. The company has no revenue and lost C$3.4 million in 2010. The cumulative book loss is C$43.9 million. The company is great at issuing stock and compensating officers and directors, but not so good at finding gold. From the company’s web site:

    Tanzanian Royalty Exploration has been a major player in Tanzania’s minerals sector since 1989. In April of 2002, Tan Range, its predecessor company, acquired the assets of Tanzania American International Development Corporation 2000 Limited (Tanzam) for shares, significantly expanding the Company’s land position in the Lake Victoria greenstone belt and revitalizing its management team.

    So many years of exploring, but still no gold production.
    Even if Tanzanian Royalty Exploration managed to find gold, the company is not in the position to extract it without additional cash or a JV partner. As of August 31, 2010, the latest report date, the company had $1.3 million in cash, clearly not enough money to develop any mining operation. Looking at the valuation, and for simplicity’s sake ignoring present value, the current market cap would imply that the company will find 900,000 ounces of gold. (The rough math is market cap of $650 million divided by a gold price of $700 ($1,500 market price less estimated extraction cost of $800). To put that number in context, in the quarter ended Dec 31 ,2010, AngloGold Ashanti (AU) produced about 90,000 oz. at a cost of $749/oz. from their Geita mine in Tanzania with average annual capital expenditures of about $20 million per year.

    A deeper look at the company’s balance sheet reveals that the true value of the company is zero. The company capitalizes exploration costs. As of Aug. 31, 2010, Tanzanian Royalty had $29.96 million of mineral properties and exploration expenses on the balance sheet. Total assets of company were a mere $32.8 million. These assets would have to be worth over 17 times carrying value to justify the current market cap of C$590 million. Book value is about C$0.35, but substantially all the assets are an accounting fiction. The real value to the assets is closer to zero.

    Canadian GAAP allows a company to capitalize exploration costs and use them as the basis for the asset when a discovery is made. See note 3 of their most recent financial statements:

    Acquisition costs and exploration costs, including option payments, relating to mineral properties are deferred until the properties are brought into production, at which time they will be amortized on a unit of production basis, or until the properties are abandoned, sold or to be sold or management determines that the mineral property is not economically viable, at which time the unrecoverable costs are written off.

    Bascially, Tanzanian does not test for impairment as long as a project is not abandoned, relying on an exemption for exploration stage companies.

    Furthermore, pursuant to EIC-17, deferred exploration costs are not automatically subject to regular assessment of recoverability, unless conditions, such as those discussed in AcG11, exist… Mineral properties and deferred exploration cost are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

    The language in AcG11 is probable, meaning more likely than not. So as long as money keeps coming in through share sales and ‘exploration’ continues, the company can claim that no event or change in circumstances has occurred and a recovery is still probable. Therefore so as long as the project is alive the company does not test for impairment and does not have to write the capitalized asset down to recoverable value. A table of deferred exploration costs is on page 30 of the financial statements. The vast majority of the average of $3 million per year of capitalized expenses are exploration and field overhead. If this were a production company those outflows would be expensed. My estimate of the recoverable value of those assets is C$0.00. Of the C$32 million of assets, I estimate the tangible assets to be C$2.5 million, C$1.1million of actual property, plant and equipment, and C$1.4 million of cash and short-term investments. After subtracting C$1.8 of convertible debt and C$0.6 million of accounts payable, I arrive at a net asset value of C$0.1 million. Repeat C$100,00.00. Yet the market ascribes a value of about C$590,000,000.00 – a whooping 5,900x the actual value of the assets.

    This situation can continue in perpetuity, and likely will as long as gold prices continue their ascent. However a dead give away that something is amiss is the chairman’s recent posting on the company web site urging shareholders not to lend their shares to short sellers. This is typically an act of a desperate company. If the share price collapses, the chairman knows that the bubble will burst. While not an outright fraud because everything is disclosed, investors should be aware that this company is more like fool’s gold than real gold.
    By James Emerson, Seeking Alpha
  2. nngu007

    nngu007 JF-Expert Member

    Jun 10, 2011
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    Jamani look @ this Damn company Tanzanian Royalty Exploration wanapata pesa zaidi ya serikali ya Tanzania; wao ni kuangalia kama kuna dhahabu na kuuza eneo kama kuna dhahabu au la... CCM jamani CCM hawajali chochote? Kikwete kweli analala? Alikuwa kweli Mjamaa au Nyoka?
  3. Mvua Ya Kiangaz

    Mvua Ya Kiangaz JF-Expert Member

    Jun 11, 2011
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    najikumbusha tu, haya ni mawazo yangu tu baada ya high school,2003,


    Once we were told of the Shing’weng’we​
    We never thought it would be you, Bulya.​
    Blown our minds with the worst nightmares​
    And enormous fierce day dreams​
    At your welcome party you swallowed​
    Our thousand energetic, innocent and poor indigenous kinsmen​
    To us, you brought a thick layer of poverty​
    Whilst grant us a gift of their bones grinded chalks​
    By the bulldozer, the surface sweeper​
    And the iron welded bloom​
    Spear-headed by our idiot, ignorant kinsmen​
    You mean nothing to us, and that is what you are​
    You ignored the accusation of stealing the souls of our brethren​
    Blinded us by repairing a pseudo-gravel road​
    To Korogwe​
    And a couple of unfulfilled sweet promises​
    For your ticky hundred years in my motherland​
    By blackmailing our careless contract holders​
    Along the golden belt you are, is where our mute ancestral spirits lay​
    Who fought for the same red-coloured dust​
    The dust that blinds our eyes​
    That grants us a gift of endless dry cough​
    That kisses our diaphragm with a beautiful pneumonia​
    At the corner near the shore you lay​
    The shore of the great beautiful lake​
    The lake that was baptized after the name of the queen​
    The queen of the industrialization era, of the mid-Victorian​
    The age that gave to them the name great Britain​
    Yes, I see you, just with endless lights​
    And the smoking chimneys and the roaring plant machines​
    After hours of my journey from Korogwe​
    Welcomed by the mushrooming dust of the red soils​
    The dust that has eagerly destroyed our life span​
    Looking up the blue skies, without even the nimbus​
    And the shining stars with the beautiful full moon​
    In the mid-night polluted air by the chocking smokes smell​
    And the alarming crazy motor cars and noises of drunkard men​
    The professional alcoholists and sexually administrated “pussy”​
    Accompanied by the plant machines; the non-stop producers​
    The dead enthusiastic teenagers board buses to the site​
    Others to the centre; for an hour of rest and seven for liquor​
    To relax of the fierce deadly underground walls​
    Red-eyed with a pidgin of decayed manner​
    Drunkards, smokers and snuffers​
    Desperate for overwork, underpay and valueless for their poverty​
    The morning singing birds and the zoom of adulterers awake us​
    The so called workers take the staff busses, and we, the daladalas​
    To the main gate to wait for the call of “Manyani”​
    We take caution money, for the system is “give to be given”​
    Job given is to I, so new and I don’t know Afrikaana​
    Then they chase me away like a homeless bush-dog around the pit​
    I march to the labour office, but they are bought too​
    I work to the underground and paid low due​
    I slapped by the kabourou, I work with no rest, I go to the labour office​
    Says he; is busy, and so I suffer;​
    In the underground of no sunshine and air​
    In the poisonous gas and endless blasts​
    In the ground full of carcasses and death at hand​
    Oh! Bulya, in your huge stomach we all lay, ​
    The stomach that swallows a million people, by once or shift​
    We drill your ribs to pave the way deeper​
    We blast your stomach to get ourselves out​
    We flash your ileum, but never say you, nay​
    We crook till you die and leave us in misery​
    A cage, to host monsters, a monastery of ghosts​
    You flesh taken to them after a hundred years of exploitation, a carcass left to us​
    We suffer with our walking dead bodies​
    We drill by hands those dampers couldn’t​
    Till we all lay dead inside your stomach, a cesspool be!