a broker also asks if rms is miner or investor, page-7

Talentless

Firstly, "good old fashion hype/speculation"? How can you justify that statement? What hype and speculation? This is one of the least hyped stocks on the ASX. Hardly ANY brokers follow it. The IPO went up 8X but barely a whisper in the media about it. Even HC was very quite on it...only I and a few other people posting on it consistently. It has bugger all daily tradeable volumes during the day. Its capital structure is immensely tight. This company goes about its business in a quiet, understated manner. Look at its presentations...despite having one of the best boards on the ASX, they don't even go into who the board is other than simply stating their names! So saying its hype and speculation is imo not correct.

Now more importantly:

"highest valued explorer around base on an EV/resource oz"

So what? To me this argument is akin to the baseless presumption that a 10c SP is cheap and a $1 SP is expensive, without taking into account the amount of shares on issue.

I've discussed the $EV/oz in a recent previous post in response to sirdean. See http://hotcopper.com.au/post_single.asp?fid=1&tid=1608620&msgid=9243257 but here we go again I guess. Not to mention a reply I made to your previous comments which I am not sure whether you read as no reply (See http://hotcopper.com.au/post_threadview.asp?fid=1&tid=1586525&msgno=7333331#7333331).

Whether a exploration company (with a resource) is overvalued or undervalued is about expected cash margins on production and NPV of a project (PLUS exploration, potential and management quality of course), not about what a company is worth on an EV per oz basis (which is mostly used as a promotional tool by companies with dud low grade projects because they have little else to say or by very ordinary analysts who don't know how to do anything more complicated).

I'd rather have DRM and its 20g/t resource any day, than a $100 EV/resource oz company that has a project with sub 2g/t resource given today's soaring costs of production and rising capital expenditure costs. Not because those latter projects wont be profitable - any gold company should be able to turn a profit in current gold price - but because DRM could be better value on a NPV, potential and management basis than many of those CHEAP $EV/oz companies. Note I said 'could be'...obviously won't always be the case.

Further, as well as production costs, the $EV/oz does not take into account the very important factor of what are the capital costs of setting up production. A mine like DRMs will require VERY little capital expenditure (as I quoted in previous post, $50M is estimated by one report which is peanuts). Conversely a low grade mine could cost a fortune to set up. Think about it...a low grade project will require a much bigger throughput than a high grade mine to achieve say 75k oz prodocution. What does that mean for the CAPEX? Well it means a MUCH bigger plant (and therefore much costlier). Add to that the other much higher CAPEX items (eg larger mine development costs such as a bigger pit, bigger tailings storing facilities, bigger accomdation village if required etc). So guess what, that low grade company now has to issue a heap of shares (unless they go all debt which would be a mistake anyway). What happens to their capital structure and therefore their $EV/oz then? What happens to their future price upside due to dilution? Etc Etc.

Let's also consider that $EV/oz does not take into account time frame. A low grade mine will be much bigger than a high grade mine. What does that mean for development approvals (a larger mine will have a bigger ground footprint)? What does that mean for how long the project will take to commission (ie setup the plant, strip for the open pit, develop underground etc)?

My point is $EV/oz is not a good tool to make investment decisions on. I wont even say that's 'in my opinion' because its a simple fact. Perhaps it is a good 'identifier' of companies to research further, but even then I don't think its appropriate. One thing the $/EV oz measure WONT tell you is why RMS is buying, hence perhaps why you asked the question. No doubt RMS has considered the following:

- Andy Well's project economics and implications on Mt Magnet project economics if it was used as a high grade blend
- the potential of a bigger resource on those economics
- the amount and quality of exploration ground DRM has in Meekatharra (I strongly suggest looking at the original prospectus and review historical drill data on these projects)
- the quality of management of the board that RMS might retain

Now its just a matter of what RMS thinks the above is all worth in terms of what they will offer.

Actually now that I think about it, $/EV oz DOES have one useful aspect...it should tell you that there might not be something quite right about a company. Perhaps the good old 'its too good to be true' is appropriate here. I have recently been looking for some gold juniors that provide very good value with projects in Australia only. A couple I looked at had ridiculously low $EV/oz. One was even quite high grade AND with copper (though the latter can cause problems itself). I wondered why their market caps were so low...on further investigation, it turned out that both companies' projects were refractory in nature which is not necessarily a project killer but well could be.

So yeah great use $/EV if you really want to, but people shouldn't write off a company just because it has a higher value compared to its other peers. Judge a company on its merits, not a single number, especially this one!

Cdchi1