A minor update on (TSX: GCM.NT.U), they will amortize another 8% of their notes effective October 31. (Press release)
They also received a credit rating increase from B to B+ on their senior secured notes. Considering that after the quarterly amortization that they will have US$35.5 million outstanding, coupled with a positive net cash balance, this isn’t surprising. However, Fitch is very correct in identifying that the life of the Segovia mine (which is substantially most of their cash flow) is quite limited and they will need to find additional reserves, and that ore grade levels are depleting. Even if the mine were to shut down tomorrow, the remaining cash balances will be sufficient to pay off the debt (albeit the equity holders will suffer greatly).
They’ll call off the notes on April 30th. In the meantime, holders continue to enjoy a disproportionately large coupon. The notes are trading in a tight bid-ask where it doesn’t make sense to either buy or sell them. I really wish somebody would bid them up into the one hundred plus teens. It hasn’t been the case – lately the bid/ask has been 108/109. So I’ll continue holding until maturity.
2 more fat coupon (Oct 31, Jan 31) and that’s it. Very sad to see this one go.
Now with only 1 more gold premium coming – isn’t 108/109 a bit high on the high side if not a screaming sell.
You still get about 10.5% at US$1,800 gold according to my math – 2.75 coupon, 3.6% gold, and 4.1% on the call.
But yeah, too much to buy, and too little to sell. Just be glad that even if Segovia gets ploughed under with a 9.0 earthquake, these notes are likely to be paid off. Contrast this with the total ripoff of shareholders in their Marmato dealings! Glad I have nothing to do with the equity. And if gold decides to retreat down to prevailing price points (e.g. US$1,200) then GCM will be back at the beggar’s table.