high gold prices a boon for ramelius , page-37

Investors are confronted between the compelling value that many stocks, like RMS, and numerous economic and financial threats to the global edifice. Numerous threats are dampening the willingness of investors to take risks, while increasingly compelling valuations are increasingly enticing. The net result of these tensions is that share prices, although rising slowly, are grossly below the valuations they would be in any other market.

Some investors worry that the gold price will crash. Corrections like the $200/oz gyrations that occurred last week both rattle and reassure investors. If we can get through a month of consolidation above $1750 and below $1900 then nerves will settle. A consolidating gold price will give punters confidence to buy gold stocks, a process that will result in additional SP rises, but not enough.

RMSs SP isnt only suffering because of these broad factors its is suffering from the inadequate and incomplete information provided by the company. The guidance that the company has provided about its future prospects grossly understates what is likely to happen in practice.

The company says that it will produce 80k ounces from Wattle Dam in each of the next two years, but in practice they are more likely to produce 100k. The reason for the apparent understatement seems to be that the company has not done sufficient drilling at Wattle Dam to prove up its reserves. It seems that management are so confident that the gold is there that there is no operational need to prove it by excessive drilling. But from a share holder point of view the company needs to get real. I understand that if the company has not done the drilling to prove the quantity of gold, how can they claim that it is there? They are hamstrung because if they cant prove that reserve of gold are there how can they claim that they will produce 100k?

The same problem occurs when the company does not publish gold production forecast for Wattle Dam after 2013. They say the deposit is open at depth, but give no indication of what lies beneath. Basic logic tells us that the 361 meter level will be very similar to the 360 meter level. Because the company has not done the drilling they cant claim that there is any gold there at all. 360m is very shallow. There is no logical reason why this mine will not go to 1000 meters or more which means for ten years or more.

They market is behaving irrationally. I am perplexed by this. The market is valuing RMS according to what it says it has and what it says it will produce and not by some more insightful and intelligent logic. The market views that Wattle Dam has a short mine life and therefore the current earnings are unsustainable beyond 2013.

2011/12 year earnings are likely to be between 40 and 50 cents per share. If you assume that this level of earnings will continue for many years to come then the a SP below $2.00 is just nuts.

It is clear that the market is not valuing RMS to anything close to what it is worth. If this situation continues, I am confident that a predator (e.g. a large South African miner) will do so. If management do not want to have their company snatched away from them at a fraction of its value then I believe that it is imperative that they take urgent action to fill in the blanks in the information they have released to the market. To do this they need to prioritise the exploration of Wattle Dam. They need to do it thoroughly and they need to do it soon.

K