Ann: September 2012 Quarterly Report , page-27

Some significant underperformance recently for SLR.
Perhaps some overseas insto lightening up on Aussie stocks, or a domestic insto taking profits since the run from the 2.60’s.
Who knows, but the charts below have me thinking it is creating a good longer term buying opportunity.

The night before last gold broke out of its short term corrective downtrend (I posted a chart yesterday) and I mentioned it was too early to know if it was a false break.
A bit of a pullback last night but it held most of its previous day’s gains.

Below are charts showing three recent golden cross events- 50DMA crossing the 200DMA
One bearish (USD) and two bullish (gold and HUI).

This is a longer term indicator and the trend often lasts for several years once established.
The USD index crosses more often (roughly once a year) but not so for the gold chart. The trend may last multiple years after the averages cross bullishly.
False signals appear to be less likely than shorter term indicators as it takes a long period to get the moving averages to cross.
Much longer period to try and “paint the picture” makes this a much more difficult indicator to manipulate.
Not the same as a couple of extra days of buying or selling to push an index or stock beyond resistance or support when it’s within reach.
So I see this as a much stronger (although not full-proof) signal.

My spreadsheet numbers look conservative relative to any other numbers I see on SLR.
Yet I have SLR on a 2014 forward PE of 7.2 and cash flow multiple of around 6.
I used an AUD1690 gold price to arrive at those multiples.
On a likely minimum 10 year mine life that seems cheap –especially considering the following.
Top management which should command a premium for valuation (higher PE).
I expect much higher gold prices over the LOM than that used and also a likely easing of cost pressures.
I have not allowed for a likely expansion of plant capacity on the IGR plant as is currently being considered by SLR management.
I have allowed nothing for what now looks like a very probable development of Hollandaire.
I have allowed nothing for other possible developments such as great Southern or exploration upside to add to mine life.
Even just a gradually increasing gold price assumption coupled with any increase in production or mine life and the PE should be closer to 10 for a sp of $5.
I am more bullish on gold over the next 10 years than just a gradual increase.
No debt, healthy and soon to be growing cash balance post completion of Murchison capex.
Likely dividend in near future.
Good diversity of mines and plant and no foreign sovereign risk.

I am likely to continue to trade this stock but for the long term investor the stock looks very good value and long term timing on the sector looks good based on the following charts.
US elections likely to cause shorter term volatility.
I bought a few more today at $2.42 again, looking for recent underperformance to reverse.
Hopefully my timing is not too far out.