RENO, NV -
Chinese nickel company Gobimin dumped its nickel assets and is embarking on a new business model of becoming a vertically integrated silver marketer and silver refiner to serve China's domestic market.
On Monday Hallgarten & Co.'s Christopher Ecclestone praised the company's decision to make the transition from base metals into precious metals, exiting "the problematic Chinese nickel market activity at the depth of the slump for an excellent price."
Like most base metals miners, Ecclestone noted that Gobimin (TSX: GMN.v) "was brutalized in recent times," forcing the then nickel miner to formulate a business strategy, which will eventually transform Gobimin into a precious metals producer and refiner.
The company is now also focused on copper and gold as well as silver.
"Gobimin's ‘Thelma and Louise moment' was in late 2009 when its previously profitable nickel operation was going into a dive over a cliff that threatened to drag it into a financial mire which would threaten its cash resources," he explained. "The eventual upshot was that the company was relieved of its prime asset for a pretty good price considering the direness of the global outlook for miners and most particularly nickel."
During the fourth quarter of last year, the company "was heading into serious loss-making territory with attendant further price erosion. This situation was reversed by the nickel divestment but the market was seemingly oblivious of this narrow escape until late January when the stock started its dramatic rise from its share price lows to where it stands at the present time," Ecclestone said.
Despite its business model shift, Gobimin has kept its Yanxi Copper Project in the Xinjiang Uygur Autonomous Region of China, planning this year to apply for its mining license, come with a preliminary mine design, and to also prepare a mine infrastructure plan. Meanwhile, the company has retained its four base metals joint ventures with local partners.
While the province of Xinjiang is now a hotbed of ethnic tensions, which recently erupted into violence, Gobimin's projects are all located at a considerable distance from the urban political hotspots.
In his analysis, Ecclestone suggested, "Connections, connections, connections are the three most important points at Gobimin, referring to the company's hotline to "the most relevant people" at the Xinjiang level.
"This is a most useful force field to have," he noted, adding that Gobimin "seems to have a propensity for building and flipping mines to Chinese end buyers which keeps its cash pile restocked with dollars."
"Beyond that it seems to have a safety net which clearly came into operation in late 2008 when it was most conveniently relieved of its troubled nickel mine when no one else anywhere could offload a nickel property for love nor money," Ecclestone observed.
Meanwhile, Ecclestone advised that China "has no shortage of poor men with a desire to stash what little they have in the form of precious metals holdings that can protect it from a fickle State apparatus. Gobimin seems to be orientating itself to serve this market with a vertically integrated silver marketing/refining structure that now only requires some upstream production to feed this beast."
‘While a purchase of a silver mine/s within China would obviously feed this need, the real no brainer would be to snap up some of the sizeable silver resources currently going unfunded and undervalued around the world as feedstock for this marketing/ refining pipeline they have set up," he suggested. "The company has no shortage of cash to secure some of the interesting assets that we see on a daily basis."
Hallgarten has rated Gobimin a "buy", suggesting investors go long on Gobimin, and setting a 12-month target price of Cdn$1.40 per share.
