Substantial Overnight Increase in the Price of Gold., page-49

Dear Groundhog2,

Let me try to reply to your posts and the points your raise:
1. Keeping sufficient cash for the decline: I agree with you that it is important to be self sufficient and extremely prudent when it comes to cash for the decline project in Philippines. As per the Dec report, we are 32% complete on that project, which has an estimated total cost of $54m. Therefore, I expect we will need have another ~$37m or so of CAPEX related to this project to be spent in 2023 and 2024. Keep in mind the project is supposed to be completed around Sept 2024. Fortunately, the company has about $66m in cash an no debt so we are covered there.

2. Mr Market can indeed get whipped around, and I think at this point he is punishing X64 with a ridiculously low multiple.

3. Yes, there is a difference between Enterprise Value (EV) and Equity. The total equity is indeed a lot more than the total EV. That is because there is no debt and a lot of cash, so one subtracts the net cash from the mkt cap to get to our EV of ~ $45m. Our equity value is about $200m, and our market cap is about $93m. So our Price / Equity, which is also known as Price / Book, is 93/200 = 0.47x.

This 0.47x is very low, and what this means is that for each dollar that we invest in the business, which as you point out gets capitalized on the balance sheet usually as PP&E, investors assign just 47 cents of value to our investments. This is why I strongly suggest to management NOT to spend too much on unnecessary expansion in Australia or PNG. Doing so will very likely destroy value.

Getting back to my original suggestion of buying back more aggressively, keep in mind as per the above that we have $66m in cash and only need about $40m of that for the Tigerway project, that leaves >$25m of cash buffer in the accounts. I'm actually ok to leave that where it is.

The company also generates about 90k ounces of gold per year, which even if we assume ONLY makes $300 per ounce, throws off another $27m (90k * $300). I think the bulk of that should go to dividends and buybacks. As for how much, before I suggested $1m USD per month. Actually, I don't know if there trading volume would support that much buybacks. Looking at monthly trading volumes over the last year, generally the shares trade 4~ 6m shares per month. If the company were to buy say a fixed 20% of the trading volume, they would only get 0.8 ~ 1.2m shares per month.

So, lets assume they can buy 1m shares per month. At 0.60 AUD, thats less than $0.5m per month on buybacks. The share price is unlikely to stay at 0.60 over this year, but for simplicity lets assume it does. Over a year, you could then get 12m shares bought back. At the end of the year, shares outstanding would be reduced from 228m to around 216m. Remember, we should have about $27m of recurring EBITDA, of which $6m we have no spent on buybacks. If we took another $10m for dividends, our dividends per share would be $10m / 216m = 4.6 cents USD / share , which equals about 6.7 cents AUD. That gets us a juicy 11% yield (unfranked), and mgt can still proceed with their project in Philippines AND keep a cash buffer.

In effect, shareholders are paid to wait for the fruits of the Tigerway decline, and everyone's a winner. At the end of 2024, the share count could be back near 200m shares, where it was before the share issuance to Vitrinite. With the extra cash flow in 2025, we can then continue the buyback and get the share count further reduced. At this point, the share value will be well north of $1.3, and mgt get their options and make some money alongside minorities.

This is what I'm suggesting. I think it's quite doable, and I think anyone who sells at 60 cents is going to regret it. Hopefully management come onboard!