Fully diluted there are approximately 250 mln. shares outstanding for this company. At the most recent stock price of 3 cents, that makes the total capitalization that the market puts on this stock  $7.5 mln. Relative to the amount of money that has been drilled away, roughly >$30 mln. , there is very little to show for all that geological activity. In the meantime the $16 mln. credit facility, not updated on the website, should by now have dwindled to a mere $6 mln. or so; pocket change for this kind of an operation that, should it want to move to a production phase, will require well in excess of $100 mln. just to get started. We would put the chances of a pleasant outcome near zero.

But the stock has done a clean a-b-c X a-b-c, double zig-zag, give or take a cent. On May 24, the company announced a re-pricing of existing employee options and the granting of an additional batch to a recently hired employee. This was approved at the board meeting on June 25th. Most options now have a strike price of 10 cents. There are about 15 mln. employee options in total (and a lot more for the credit facility!). Presently, if you are optimistic, if only briefly, you could buy the stock at 3 or, maybe, 2 cents and view it as an immediately vested, non expiring option with a premium of 3 or 2 cents. In fact you would be getting a much superior deal than the Seafield employees themselves despite the premium paid. This is evident if, for the sake of argument, the stock miraculously  rebounds to, say, 16 cents. You would gain 14 cents and the employee just 6. If the stock does not rebound you lose 2 cents and the employee his job. Which begs the question why the employees are not on the bid all the time at these levels.

The stock may still climb back to 10 cents briefly, but if the count on the right is remotely correct there is little hope of it staying there. Next week (25th of June) is the big general board meeting held at the posh address of Toronto street. In advance of that  we have had some stock option repricing , poison pills, and now a new study to examine the feasibility of the main project.

Cash costs, the equivalent of variable cost pricing, are estimated at $724.77 per ounce of gold. Silver is ignored due to its secondary role. Total capital plus maintenance costs are estimated (in great detail) at $154,349 mln. For this it is expected that 529,453 ounces will be produced over the life of the mine with a recovery rate of 89%. That works out to a “fixed” cost of $291.52 per ounce ( using the fixed/variable analogy further). The total cost per ounce is then $1016.29. A table in the report shows the sensitivity to the gold price as follows;

The report uses $1500 for the baseline. $1295,00 , where the yellow stuff is as we speak, is conveniently NOT featured as a possibility. Interestingly the $200 drop in the gold price causes an almost halving of the return. Another $200 drop would eliminate all profit which is not all that surprising as that is approximately where the cost of production are if certain elements that are not included in the full costs, such as royalties etc. are included. Lately just about every miner has managed to incur costs overruns of colossal proportions so there is no reason to expect these chaps to be much different. So, this is a screaming buy if you expect gold to climb to $2000 and up. If you expect gold to maybe hit $1000 or lower, don’t touch it with a twenty foot pole. By the way, you only have about 8 months or so and then the cash facility is gone, fully utilized. By definition therefore, this is as close as you can get to buying an option, which is exactly what everyone else from management to employees and financiers now has. Only difference will be that you are fully vested from the start and the expiry date is undetermined!

All of the above is predicated on a discount model that uses 5%. To what extent that is representative of a junior exploration company yet to move to actual production, is an interesting question. Judging by the 7% charged on the finance facility (not including the equity bonus) one would have to conclude that it is not representative at all.

See also; http://www.northernminer.com/news/seafield-envisions-a-smaller-operation-at-miraflores/1002413491/#

or; http://www.stockhouse.com/companies/bullboard/v.sff/seafield-resources-ltd?threadid=21545904

If you followed our advice and bought this stock at either 5 or 4 cents we recommend selling same at 10 and 8 cents respectively for a clean double. All options have been re-priced to 10 cents, a standard procedure when things do not work out the first time, but obviously at the expense of normal shareholders who do not have an opportunity to rewrite history. Also there are an additional 250,000 options given to the geologist. Not surprisingly a new find was announced today just a few hundred meters from the main body. As mentioned before, there is a boatload of options waiting to be cashed in once 10 cents is reached. Take the double and move on.

From the website today;

The Board has adopted the Rights Plan in recognition that take-over bids may not always result in shareholders receiving equal treatment or fair and full value for their common shares. The Rights Plan is not intended to block take-over bids.  The Rights Plan grants shareholders rights  (“Rights”) pursuant to the terms of the Rights Plan. On the occurrence of certain triggering events, which include the acquisition by a person or a group of 20% or more of the outstanding common shares of the Company in a transaction not approved by the Board, the Rights will entitle the holders (other than the acquiring person or group) to acquire common shares of the Company at a significant discount to the market price. The Rights are not triggered by purchases of common shares made pursuant to a “permitted bid” (as defined in the Rights Plan) or where the application of the Rights Plan is waived in accordance with its terms.

The Rights Plan is not being adopted in response to any formal proposal to acquire control of the Company.

Obviously there is someone sniffing around. The stock has traded for some time now between 4 and 5 cents and we reiterate our buy recommendation for a trade only and with play money only. Moreover above 10 cents there are sellers galore so it would be something like buy at 4 and sell at 9 cents. The rights plan is effective immediately but will have to be confirmed at the next general shareholders meeting set for June 25th. Volume over the past few weeks is in the order of 10 mln. shares, not enough to reach the roughly 40 mln. to reach the 20% level. However certain parties may already own large blocks and there is also the possibility of exercising ( out-of-the-money!) options to make the point. We will see. In any event a further drawdown of the loan facility should be just around the corner.