Can VAULT crack 50 cents Monday?, page-16

Greatone - That's a very comprehensive bit of "first pass" analysis. Goodness knows what you'd be able to sort through if you had a day or two to look at the company.

By way of a bit of background, a few years ago, Red 5 Ltd (now renamed VAU after a "merger" with SLR) borrowed (from memory about $200m) to construct the King of the Hills processing facility and one of the pre-conditions was hedging a fair portion of its future output. Without undertaking the (initial) hedges, they wouldn't have got finance for their plant. Management did subsequently take on a few more hedges seemingly without being required to do so by their lenders though.

Around 75% of the hedge contracts VAU had at 1/1/25 will have been delivered into by 31/12/25 and a few months after (assuming they don't undertake any more hedging) all gold sales should be at spot prices.

If you assume the gold price will stay at current levels forever, the NPV of VAU shares is well above their current trading level. But not many investment banks or sharebroking houses seem to be making that assumption and quite a few are suggesting the gold price in the next few years may not be as high as it is now. In the scenarios these players are currently forecasting, they may well see the VAU share-price as at around fair value.

If, however, forecasts for gold prices "to stay higher for longer' start to become a widely held view amongst the analysts and the commentators, then you'd expect gold stocks to be re-rated upwards. And I reckon VAU would re-rate more than its peers because the hedge book has certainly been a bit of a handbrake on its share-price to date as the AUD gold price keeps marching higher and higher, and the company is achieving these higher prices on only a portion of its output.