Bombastic News for Lone Star Gold, Inc. (OTC:LSTG) Take Its Toll
The last few days have been fairly intense for Lone Star Gold, Inc. (OTC:LSTG) as its stock scored some really big gains followed by substantial nosedives. At the root of it all lies a bombastic press release about an investment agreement.
It all started on Dec. 20 when Lone Star filed an S-1 form, i.e a preliminary prospectus for the resale of up to 19.6 million shares of common stock to Deer Valey Management, LLC, which would allow them to receive external capital of up to $15 million over the next three years. As it it, the agreement came into effect on Jan. 7 when the company announced it officially. Naturally, investors got their hopes way up as they walked into a trading frenzy with LSGT.
As a result, LSGT surged 66% on the corresponding session. What is more, the euphoria lasted for two more days, leading to an aggregate appreciation of 337% by the end of the Jun. 9 session. Needless to say, this run was accompanied by record-breaking volume levels. Unfortunately, this is where the good news ends.
Just as everybody wondered when (and if) Doomsday will come, it did appeared yesterday when lots of profit takers sold their stakes, thus saturating the market. As a consequence, LSTG closed trade at $0.0879, down 45% from its previous close. Moreover, one hour into today’s session, the stock is still losing ground as its current quote at $0.075 amounts to a 15% depreciation as compared to its Jan. 10 close.
According to the agreement, LSTG will be utilizing the money to start constructing its first processing plant in Mexico which will supposedly process a total of 1,000 tons of mine tailings per day within the next 3 to 4 months. No doubt, we will keep a watchful eye on LSTG to make sure that CEO Danie Ferris remains true to his words. In the light of the company’s overall state, however, the odds might turn against him. Why?
A quick glance at LSTG‘s financials reveals that, even at $7.9 millions, its market cap seems way overvalued. What you have got against this figure are $289 thousand of assets, a cumulative loss of 1.7 million, as well as zero revenue. By contrast, in 2011 Ferris splashed out more than $1 million to satisfy administrative expenses, including his salary.
Provided that everything goes according to plan and LSTG gets a grip on those $15 million and manages to utilize them in the best possible way, the company might make a step into the right direction. For the time being, however, keeping a critical eye on the stock seems like a logical move.
