try how high can the sp go, page-4

Morning All, Pinto and Paul,

Paul says:
"p.s. i am not taking any SIR discovery type factor into account. I am looking forward to what they find at TI though. SIR shows you cant rule 20c out. In the end I would be very happy with 6-7c"

I agree with this statement, but will go as far to say that you can't even rule out anything north of 20c moving forward - based on exploration results only.

Over the past few years, FML has transformed from an explorer to a producer. In recent times, the market has assessed FML as a producer, and not based on its exploration results / prospects. Production has risen, but associated profitability has been poor and certainly not relative to their production profile increase, or an increase in the price of gold. These poor results have ultimately resulted in poor share price performance, or have at least been a massive contributor to negative returns for shareholders.

In 2013, and provided the cash arrives from Shandong Gold Group, I suspect that FML may wear the exploration hat far more often than the production hat, and in that case, we have the opportunity to be re-rated on exploration results irrespective of a flat contribution from production. Over time this must change, however, exploration alone can be enough for FML to finally add value to our portfolio's.

Globally, explorers have low market caps by comparison to their big cash cow producing brothers. They can represent great risk / reward opportunities, but beware, the risk is massive. If we now look at FML's risk profile as an explorer, this is what we find:

Explorer Risk 1 - Massive Capital required to go from explorer to producer if you do find something.

In this area, FML will be largely de-risked due to the existing infrastructure and the cash kitty of $225M. Tick for FML.

Explorer Risk 2 - Potential of finding something decent.

We are not really talking greenfields here for FML. We have a massive landholding in some of the most prospective gold country in the world, not just Australia. FML has already proven that it can maintain its resources and reserves and increase production, with very little exploration spend. What can they do if they actually get to focus on the ground they currently own. Again, FML is massively de-risked compared to say 99% of explorers.

General Explorer Risks - Extraction, Recovery, Royalties.

Again, and apart from TI which may / may not prove problematic in ore extraction, FML is by comparison, effectively de-risked compared to others. FML owns the land, FML has existing transport and treatment facilities in place and much of the land to be explored will provide gold in a form that FML is already accustomed to processing.


In summary, I do believe that failing a further significant rise in the price of gold in the near term, that FML may remain cash flow negative. On the flip side, I see exploration as a being of massive potential to a significant share price appreciation over the coming months (say 3-12). I am myself invested in other explorers, and ALL of them have risks detailed above, which at some stage, need to be addressed. Some of them have an even greater market cap than FML with almost zero formal asset backing and massive risks ahead of them, yet I have made more profit from these companies that I have from FML. This clearly, should not be the case.

Wishing everyone here a safe, happy and healthy Xmas and New Years (even Bazzad2 - :)). A time to enjoy good food, good wine and good company and not a time to worry about investment in FML.