The Speculator

PORTFOLIO POINT: A reshuffle of the portfolio to boost our cash at bank and to give emerging gold producer Citigold Corporation (CTO) another chance to reach its targets through a new capital raising.

The very last sentence of Citigold Corporation’s March quarterly report, released to the ASX on April 30, rather cryptically announced: “Citigold and Dubai Ventures have mutually agreed to go our separate ways and not proceed together due to each party’s different commercial reasons.”

What did it mean?

In September last year, Citigold appeared have pulled off a financial coup in signing a deal with Middle Eastern financier Dubai Ventures Group to inject as much as $35 million into the Queensland company to fund a production target of 250,000 ounces a year by 2011 from its Charters Towers gold project. That was based on announced resources totalling 10 million ounces of gold within 22 million tonnes of ore grading 14 grams a tonne.

The deal was based on the Dubai company taking a $10 million placement of shares at 20¢ and committing to a $15 million convertible note to be drawn down in tranches over the following months. While the share placement was largely completed, it is now apparent that the note remains undrawn and effectively the venture is in suspense due to the worldwide credit crunch.

The good news for Citigold, however, is that it has still been able to raise alternative funds, even if the March quarterly report made it appear touch and go.

Expenditure on mine operations and development in that quarter amounted to a net operating outflow of cash totalling $2.38 million, leaving cash at bank of just $74. Not to worry. Before the end of April the company had raised an additional $5,764,200 from an issue of 30.67 million shares to professional and institutional investors plus 6.9 million options exercisable at prices between 23¢ and 27¢. That will well cover projected exploration, evaluation and mine development costs estimated at $3.5 million in the current quarter.

nThe Speculator portfolio, as at May 19
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Laserbond	LBL	20,000	4/07/2008	$0.10*	$0.110	$2,200
EMT Corp	ETC	20,000	1/08/2008	$0.24*	$0.400	$8,000
Robust Resources	ROL	60,000	13/02/2009	$0.155 avge	$0.435	$26,100
Quicksteps Holdings	QHL	20,000	16/03/2009	$0.17	$0.205	$4,100
Cortona Resources	CRC	20,000	14/04/2009	$0.15	$0.185	$3,700
A1 Minerals	AAM	20,000	12/05/2009	$0.145	$0.170	$3,400
Total value of portfolio						$47,500
Cash at bank						$13,330
Total						$60,830
Portfolio change since January 1, 2009						52.08%
All ordinaries change since January 1, 2009						3.86%
*These shares were carried over from the 2008 portfolio, hence the 2008 purchase dates. However this price is the "beginning of year" value not the original purchase price. Disclosure: The author's family holds shares in Laserbond. Current value based on last sale May 19, 2009

Just to be sure, to be sure, Citigold’s managing director Mark Lynch and his board last week announced a share purchase plan for existing shareholders registered at May 12 and closing on June 5. It is conservatively expected to raise close to $3 million, maybe more if enough shareholders respond.

Shareholders are being invited to subscribe for a maximum size parcel at a cost of $5000 comprising 31,250 shares at 16¢, plus 1563 free loyalty shares for a total of 32,813 shares. That’s an effective cost price for the new shares of 15.2¢.

Shareholders may apply for a minimum $1000 parcel or in multiples of $1000 up to the maximum offer of a $5000 parcel. Directors have pledged they will be taking up their entitlements.

Citigold shares have retreated from about 27¢ early this year to 17–18¢ now. That has been due in part to lower grade development ore being processed as the company opens up production faces on richer ore off its advancing decline shaft. The company predicts gold production in calendar 2009 will total 25,000 ounces, with production in the September quarter doubling to 5000 ounces and rising in the December quarter to 15,000 ounces. That means the company will reach an annualised production rate of 60,000 ounces by the end of calendar 2009, when cash flow from bullion sales will be greatly enhanced.

It is predicted annual gold production in 2010 will rise to 85,000 ounces then lift to 160,000 in calendar 2011, with targeted cash costs reducing from a recent $488 an ounce to $350. That will leave a substantial profit margin with the Australian gold price holding around $A1200 an ounce.

Readers who followed the Speculator into Citigold in past months may wish to join the rush as I’ve sold our remaining holding of 30,000 Citigold shares in a Tuesday trade at 17.5¢. I’ve now applied for a $4000 entitlement for 25,000 shares at 16¢ plus 1250 free loyalty shares or a total of 26,250 shares.

nThis week
Sold
30,000	Citigold	CTO	17.5¢	$5,230
Applied for
26,250	Citigold in a $4000 parcel yet to be granted

David Haselhurst writes a monthly column for Money magazine.