DUMPING, page-156

Winmore - I don't have any issues with the general thrust of your post earlier today. And I'd support you 200% on your statement "I hate to agree with Nick007".

My underlying feeling, though, is that a fair part of the reason for the current price VAU trades at is that investors are a bit cautious about the price of gold staying where it currently is ad infinitum. Not surprisingly, unhedged gold stocks are enjoying a better run at the moment but if you look at the majority of gold miners in Australia and Canada and the US, the share-price appreciation they've achieved over the past year or two has been (by historical standards) significantly less than what you'd expect given the appreciation in the price of gold itself.

I've done some very rough numbers (emphasis on very rough) looking at VAU's possible profits over the next 10 years, using an 8% pa discount factor and acknowledging that Australian tax losses will be extinguished fairly soon.

If the AUD gold price stays where it is now, forever, then the NPV of VAU shares is about 52c IF OUTPUT REMAINS AT CURRENT LEVELS.

Let's say the company is able to ramp up production by 20% - then the NPV could be calculated to be about 67c.

However, if you factor in that the AUD gold price could drop by $500 an ounze in the next year or two, and then stay AT THAT LEVEL ad infinitum, then at current production levels, my estimated NPV for VAU's shares drops to about 48c. With a 20% higher output, let's say the NPV could instead be around 63c. If you factor is that the gold price could come back AUD$1,000 per ounze from where it is now (ie back to where it was only about a year ago), then the NPV calculation for VAU shares drops even further.

Most of VAU's hedging contracts outstanding at 1/1/25 will have been delivered into by 31/12/25. However, the fact that VAU could be selling nearly all its production at spot won't result in a re-rating of the stock. This is already a "known known" and analysts covering VAU have already factored this into their models (I've also factored this in when estimating the numbers set out above).

If one absolutely believes that the AUD gold price won't fall below where it is at the moment, then VAU shares are a screaming buy at current levels.

If you're a bit more cautious on what the future AUD gold price will be, then VAU may be undervalued but not outrageously so. Or you might even consider it to be trading around "fair value" if your particularly bearish on the gold price remaining where it is.

If the professional investors and institutions are actually taking a cautious approach (at this point anyway), all management can do to raise the VAU share-price is to boost gold production, reduce the AISC and reduce corporate overheads (I can't see them reducing Directors Fees and Executive Salaries though).