Ann: Response to West Australian Article, page-14

The back of the envelope figures in the article are actually quite interesting, even if misleading. It may well be that someone was doing analysis after dinner and several bottles of wine (some nice wines are made in W.A.) and just used the gross numbers. One million ounces at A$3,000 an ounce is indeed three billion dollars. But that is an in ground value, not a mined, refined and poured form of gold. Let us play around with the numbers a little more and see if we can get something a little more meaningful out of them.

If one million ounces at A$3,000 an ounce equals A$3,000,000,000 and there are 11.7 million ounces that gives a total in ground gold value of A$35.1 billion. If we divide the in ground gold value of A$35.1 billion by the 1.464 billion shares on issue (rounded up) that gives each share a notional value of A$23.97 in the gold contained in the ground. It is still meaningless at this stage. If we divide that number by two to reflect an AISC of A$1,500 an ounce for mining the gold that means that each share has a possible future value of A$11.98. That won't happen as those who invest in gold mines are looking at yield. So let's halve it again to allow for institutions wanting yield that would still give us a possible value of A$5.99 a share as an enterprise. This sort of analysis is totally invalid if promoting an investment but when it comes to projecting where my shares could end up it is permissible.

Now, what happens if the price of gold goes up to US$3,000 an ounce and the A$:US$ exchange rate remains constant? I will leave my fellow investors to ponder that possibility.