more determined than ever to hold, page-16

Gaps, re the next PRU;
I was thinking more along the lines of the next SLR rather than the next PRU.
SLR started only relatively recently (2007) with a very small underground mine and very small resource, and built up resources to 3.5mill ounces over 4 years (4.5mill oz today after an acquisition). They now have a mc around $700mill with production of around 100,000 ounces this year set to rise to 300,000oz by 2014.
We have well over 3mill ounces already although many of those are lower grade.
OP contains 565,000 of those ounces at 10.5g/t which is much better than what SLR started with (ignoring our Buccaneer and Hyperion resources) and we have a scoping study for OP suggesting we can produce at an average of 125,000oz per year for two years (more than SLR currently produces and we can produce at a much lower cash cost). Capex estimated at 27mill and we probably have well over $20mill in cash still.
The disadvantage is we have only a two year mine life at OP based on that study (similar short mine life to start with for SLR), but exploration for us is very early stage and coming up with excellent results and that study excludes our recent discovery and u/g potential. We should be looking at a 3 year mine life very soon and the potential is excellent to grow that by years before we even start to mine.
The advantage for us is most of our resources are open pit. We have ample potential to discover plenty more at depth as well as on and near surface to extend mine life at OP.

The more I look at the way the price of gold is behaving, the more bullish I am getting on our other larger deposit, Buccaneer.
I mentioned yesterday that I believe ABU offers us excellent leverage to higher gold prices because we also own Buccaneer which is a very large single deposit with a low strip ratio, bulk mining potential that is not given any value by the market. With gold above $2000 Buccaneer is likely to be worth much more than OP which dominates our discussions here.

I was talking to a friend today who told me he bought a house in 1982 for around $35,000 that is now worth $600,000.
That’s a rise of 17 times. Gold has risen from around $400 to $1600 (in AUD as well as USD) over the same period. That is up JUST 4 times.
Then we get people telling us gold is in a bubble!
I call that ignorance of the facts.
That’s just one house so for some official numbers on house prices, I did this work last year when gold was $1500;

“As a comparison, median house prices in Melbourne were $44,000 in 1981 and $524,000 in 2010.
That's a rise of 12 times over the same period that gold has risen by just 3.76 times.
Even if house prices manage to fall 50%, they would still be up by 6 times compared to 3.75 times for gold.”

So if people tell me gold can only go higher if we have strong inflation, I disagree.
Gold can rise 50% while house prices can fall 50% for the gains to be comparable over the period.
Its not just house prices either, I can’t think of too many assets, utility prices or anything else (especially including capital and operating costs for miners) that have not risen by more than gold.
Gold could easily reach $2,500 without inflation and that will make Buccaneer an extremely valuable asset for us to add to OP.
As far as I am concerned, gold will catch up and $2500 is only a matter of time. 1-2 years maximum IMO.
OP is already worth roughly 8c per share ($257mill) according to the scoping study based on open pit only and that is already out of date after recent exploration results.
You might want to deduct something for tax but could easily add back a similar amount for likely increases due to already reported results and likely very near term additions.
What about gold at $2500? As I showed yesterday OP would jump to over $470mill or 13c before allowing for tax.
I went through a similar but more conservative exercise to the following yesterday for Buccaneer.
There are comparable projects to Buccaneer currently being mined profitably at $1600 gold so I don’t think my numbers are too optimistic here.
Conservatively assuming Buccaneer is only marginal at $1600 after all costs, then at $2500 it should have a $900 profit per ounce;
We have 2.6mill ounces at Buccaneer. If 1.6mill ounces fall within a pit design with a $900 profit at $2500 gold, that would equate to $1.5bill before tax.
Some will argue my $2500 gold price is too high, but many knowledgeable respected experienced individuals predict much higher prices than $2,500 although I suspect they are allowing for future money printing to some degree. My numbers are based on money inflation to last year.
I think I am being conservative enough. I see it as only a matter of time, and after a now 10month consolidation we may not be waiting long at all.
The GFC correction in gold only lasted 8 months to the bottom, and then it tripled almost uninterrupted on the monthly chart till last year.
It tripled on the last big rally, and all I am looking for after this long consolidation is a 50% rise to bring it in line with house prices assuming house prices first halve!
I don’t like to make up numbers. I think everything through very clearly before making my thoughts public.
Sure nothing is certain, but I like the odds of being right about ABU being the best gold exposure I know of right now to take advantage of higher gold prices, or just for the exploration upside at OP if POG does not do what looks inevitable to me.

If anyone sees problems with my numbers, I will be happy to discuss.