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Rational expectations?

February 16, 2018 - 10:23 -- Admin

A penny dreadful mining exploration company that I have followed in the past (to my regret) has made losses for each of the past 10 years.  It has several exploration sites that it owns or co-owns,  but none is anything close to a producing mine – indeed at some “promising” sites, only a single drill sample has been analyzed. Several of the sites are in Africa.   The firm is capitalized at about $40m but has cash at the bank of only about $500,000.  Over the past 6 months, it spent $1.7m on “administrative and corporate costs” (it pays its CEO $700,000 annually) and about $900,000 on “exploration and evaluation” activities.  It is scheduled to spend about another million over the next quarter on “exploration and evaluation”.

To me it isn’t just Bitcoin that raises questions about the rationality of investor expectations.  Of course, the firm might strike it rich  – I might win Tattslotto too –  but a market capitalization of $40m suggests more than a little exuberant optimism.   A reasonable question can be raised as to whether it is a going concern – but new issues of stock to credulous investment can keep it ticking over I suppose.  It has 700 million shares out there now.