And Now for Something Completely Different… IT’S

Great Northern Iron Ore Properties

I hadn’t thought about this impending disaster of a company since March.  Back then, I looked at the numbers, chuckled, and moved on.  But yesterday after the close, Mark Grant made a reference to the company on CNBC and I was inspired to re-visit this hot, steaming mass of… iron ore.

Well, not really iron ore.  Temporary rights to iron ore.  GNI is a trust with rights on the Mesabi Iron Range in Minnesota.  This trust expires on 4/6/2015 and, on that date, it ceases to be.  It is no more.  It expires and meets its maker.

Per GNI’s website (http://www.gniop.com/termination.html), upon its expiration shareholders of the trust will receive $8.39 (per 12/31/2012 calculation).  In the meantime, shareholders can expect to collect $10.50 – or about 15% — per share in dividends each year (an extrapolation of the last two dividend payments).

So my math goes something like this:

All remaining dividends                                  $21.00

Expiration Value                                               $8.39

Total Value to be Received – EVER                $29.39

Why go through all this math to make a point?  Giving the future cash flows the benefit of the doubt by not applying a discount rate, you are receiving just over $29 of value for a stock that closed up 0.43% yesterday at $69.56.

What makes this abomination even more abominable is the press coverage.  Here are some recent news stories pumping GNI:

May 20:                4 Buy-rated Dividend Stocks: CXS, BKSS, GNI, EXLP

May 9:                  5 Buy-rated Dividend Stocks:  EDUC, NMM, BKCC, GNI, CODI

April 29:                3 Buy-Rated Dividend Stocks:  GNI, INTX, CODI

Who is rating this thing as a buy?   Here is a summary of points covered in the articles:

  • ·          GNI has a debt to equity ratio of zero
  • ·          Profit margins are very high at 77%
  • ·          Net income significantly exceeded that of the Metals and Mining industry average

No mention of the fact that YOU ARE GOING TO GET $29 FOR YOUR $69 STOCK COME 4/6/15.

If only you could buy puts or short this stock.  But, alas… it’s practically impossible to borrow and there are no options.

Well, you can technically borrow it if you don’t mind paying 77% per year in the negative interest rebate.  In a weird way, it may be this high level of rebate that is supporting the inexplicable price.  If I were to buy the stock and lend it out to a short seller at 77% rebate for the two years before it expires, I’d collect a tidy $106.  Less my $69 cost, I pocket $37 net out of thin air.  Meanwhile, as the lender I’m entitled to receive payment in lieu of forgone dividends – adding another $21 and bringing my take to $58.

Good for me.

In the end, all we can do is sit back and watch the slow motion train wreck of yield-seeking, uninformed investors getting wiped out.

Or stepped on.

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