Crescent Gold: A Small Producer With An Exploration Market Cap

Crescent Gold, a Perth-based Australian gold exploration company, is unusual in that it has a huge number of total shares outstanding. Although not the biggest on the Venture - I've seen a company with more than a billion shares outstanding - it's up there. With 593,436,875 shares, there's little wonder as to why its stock closed today at 6 cents. At that price, it's market cap is $35.606 million - not bad for an exploration company. Except, it's not: the company is a small producer with its Laverton mine.

The stock jumped up from yesterday's close of 4.5 cents because it drilled a hole on its Laverton property that yielded a rich 12.58 g/t gold over 12.1 metres of core. That was the best of several, but two others contained significant intercepts too. Laverton's reserves - not resource, but reserves - are 445,000 oz. It went into production as of August 2009: it hauls its ore to Barrick's Granny Smith mill. It's been sandbagged by excessive rain and a bad road recently, so its estimated production this year is now expected to be only 80-90,000 oz instead of 110-120,000. As a reult, it lost 1.82 cents per share in the second half of '10 as compared with earnings of 0.15 cents in the second half of '09. That's why this company's market cap is near that of an exploration company.

Essentially, Crescent is a turnaround play. In order for it to go back to a profit, it had to restore normal operations for its Laverton mine. Road repairs are going to cost some, and the exploration budget will likely be pinched as a result. The company's presently trying to secure a new line of credit to replace its old one.

Its one-year chart, from Stockcharts.com, shows its travails. Unusually for a gold stock, it's slumped in the last six months until recently:



The Moral Of The Story: Turnarounds can be profitable, but they have to be looked at closely. For a company like Cresent, turning around means putting its production difficulties behind it. The road to the mill hads to be repaired, and the rains can't interfere any more. What makes Cresent a risky turnaround play is the weather factor, which isn't predictable. Investing in a company like this one requires a lot of due diligence, and some luck; the hope is, the company will have righted itself before the market notices. A good place to start the due diligence, in Crescent's case, would be to spend a lot of reading time at its Website and go through not only the Laverton project description but also its news releases. Especial attention has to be paid to the bad news, to see if there'll be a repeat coming. Even after all the due diligence, there's no way to avoid the shouldering of risk. That risk assumption is what makes a successful turnaround play profitable.


Disclosure: None - I don't own a share.