Management, page-18

Disclosure.

Based on the appalling share price pounding we saw yesterday in response to the second guidance miss at Dacian's Mt Morgan project I have regretfully liquidated all my holdings in RSG over the last two days along wth a number of other gold holdings that I had bought for the future.

What happened to Dacian is a brutal example of what is happening far too frequently nowadays in the Australian gold mining sector. I have lost all faith in the capabilities of the professionals we have trained in WA to manage even the most basic tasks of reserve and resource grade estimation. It is appalling and a blight on our mining industry and all people working within it that the profession can get it so horribly wrong in so many cases.

Additionally the gold sector has become a tail of two cities with some Australian gold companies trading at nose bleed and unsustainable valuations. Case in point NST, to name one of many.

The net effect is that if any of these development plays stumble while carrying development debt they become immediate prey for takeovers or mergers with companies that can use their overvalued script to screw over shareholders that have supported and carried the risk of developing new mines.

The irony is that the market is not willing to punish a company like NST for its falling grades and rising AISC costs at, say its Kalgoorlie operations, which year to date is running at an AISC of about $A1,350 because the perceived risk is low (because the company has no development debt in relation to such operations). The market is however unwilling to punish NST on the simple basis that the market valuation of, say their Kalgoorlie operations, is just plain and simply just to high being valued in the billions. Imagine if the A$ gold price was still lingering around $1,600 to $1,650/oz where it was not that long ago? Would the market still see a multi-billion dollar valuation placed on those operations with an AISC of $1.350? I very much doubt it. So risk can come in all forms but unfortunately the market is far more sensitive to development risk, rightly or wrongly. From my perspective RSG has an high development risk profile but in the long run will be a stand-out stock based on the company's vision to create low cost long life mines. Unfortunately the market seems to want to wildly over pay for current production irrespective of how dead ended it is and the market is not prepared to pay for innovation and vision.

Given the way the funds have abandoned Dacian at such an early stage and left it with such a strongly discounted valuation in my opinion (even accounting for the issues it has suffered) I can't stomach the potential of that being repeated here so I've regretfully sold. The ASX bubble stocks that the market gives privilege to and who are in positions to take advantage of vulnerable start-ups, as I said, have nose bleed valuations, nose bleed EV/reserve ratios and have no hope of hell to replace reserves based on their aspirational future production profiles. There only hope is to pick off cash strapped or stumbling developers with reserves.

The sector is a basket case and I'm exiting the sector and the market and am staying away until I see opportunity. Basically the last two years has been a struggle to find anything to buy. Esh