Friday, July 30, 2010

Baja Mining ( As day follows night

Shocked! Ah wuz shocked ah sez! Here's Baja Mining's ( news release from this morning:
Baja Mining Corp. (Baja) (TSX:BAJ)(OTCQX:BAJFF)(PINK SHEETS:BAJFF) today announced it has executed an agreement with a syndicate of underwriters led by Cormark Securities Inc., and including CIBC World Markets and Canaccord Genuity Corp. and Rodman and Renshaw LLC, participating with respect to sales in the United States on an exempt basis, (collectively, the "Underwriters") under which the Underwriters have agreed to purchase, on a bought deal basis, 21,875,000 common shares (Shares) of Baja at a price of $0.80 per Share for gross proceeds of $17,500,000 (the "Offering"). The Shares will be offered in yada yada continues here

Well I've never seen this pattern of pump-then-finance in a junior miner with a poor track record of delivery before. Not. And heywow! here below is what was written on BAJ in last week's IKN Weekly...funny how these things happen, innit?

Baja Mining (, BAJ filed its June quarter results on Friday so let’s run a quick snapshot of some basic financials at BAJ:

  • Shares out: 143.98m
  • Warrants: 24.99m (16.2m at exercise price $1.25 , 8.1m at exercise price $2.49)
  • Options: 12.625m (all in money at 40c or 59c)
  • Fully Diluted: 181.6m
  • Cash at Bank: $11.9m
  • Working Capital: $8.2m
  • Total Assets: $183.67 (incl $167.8m in booked mineral properties, i.e. Boleo)
  • Total Debt: $56.82m (incl $42.3m in long term loans from Korean JV partner)

As BAJ has a typical cash burn of around $1.8m to $2m per quarter, it currently has the cash to run for around another four quarters, maybe five (working cap was $18.55m as at Dec 31 2009). There is some work being done at Boleo but due to the lack of a final deal on the financing of the project BAJ clearly isn’t working at full tilt. The feeling is that money is a little tight right now as no explorer (especially not one with an advanced-stage project) likes to see its cash position close to zero before running a round of financing. Therefore it would come as no surprise to this author to see another equity placement from BAJ at some point in 2010 if the company can’t nail down its definitive financing for Boleo.

Another thing: Your author notes the diminishing cash position, then notes the recent (we’ve mentoned it the last couple of weeks) rumourmill on BAJ “nearly there” etc etc, and then notices the recent upmove in the share price, too. Are they connected? Am I being too cynical? Maybe, but I’ve noted over time that being cynical means holding less regrets about juniors in the future.

This quarterly held no real surprises, however. The bottom line is that BAJ as a company will succeed or fail on eventual financing, construction and operation of the Boleo project in Mexico. In the words of the company’s MDA:

The recoverability of the Company’s investment in its mineral property remains dependent upon the Company’s ability to complete debt and, equity financings, and to successfully construct and develop the Boleo Project.

There’s no arguing with that.

Disclosure: No position in Baja mining.