getting drilled, page-2

Hi Fellow RSG Holder

I too have been a long term holder of RSG, it is my biggest holding.

RSG is seriously undervalued in my opinion, given it has two operating mining precincts (Golden Pride and Ravenswood). In addition, Mt Wright underground is due for development at Ravenswood which should offset the current low grade high cost orebody that is being processed. There is also significant exploration around Golden Pride area that could be processed at Golden Pride or have a stand alone operation if sufficient resources can be found.

The potential wild card is Syama and the JV with Etruscan Resources at Finkolo (near Syama) whose ore may be trucked to Syama. While a massive multi-million ounce orebody with good grades, the biggest problem with a substantial proportion of the Syama orebody is that not only is it a refractory sulphide ore, it also has organic carbon in the ore (carbon results in preg-robbing). RSG believes they have cracked the nut by implementing a process route different to Syama's two previous owners (BHP, and Randgold). They are going to roast a concentrate (instead of the whole of ore roasting that Randgold used). Apparently, the "energy balance" of the ore is very poor, and as such whole of ore roasting was a poor choice by Randgold. My geologist friend tells me that a poor "energy balance" of a sulphide ore means that for some reason, the sulphur in the ore did not seem to react properly to whole of ore roasting and did not seem to contribute to the roasting via endothermic reaction and as such required too much power. Hence, the roasting the concentrate solves the problem, as you roast less (hence less power) and the sulphur is more concentrated and is more likely to help contribute to the roasting.

There is talk that at Finkolo, they have identified a very significant oxide resource called "Taborakani", this could potentially be the starter project for the Syama plant, where they would just use the conventional process (that is concentrate and CIL) and not do the roasting as it is oxide. This would result in significant lower technical and cash costs as less power is required...not sure of the trucking distance though.

THe sale of VUL to PDN is an excellent outcome and should they be able to sell their PDNs at a price somewhere near the current price, they will not need to raise any equity or any debt (or a little debt at most) to finance the Syama plant refurb and improvement. As such, there will be no requirement for further hedging (which banks normally require) as there is likely to be no or very little debt.

The key issues (that I can see) with RSG which holds it share price back are:

1. Ravenswood's current operations are not profitable as cash costs are enormous (this is being addressed with the Mt Wright development which is higher grade and lower cost)

2. A massive hedgebook that has a massive negative marked to market value as a lot of ounces were forward sold at low prices, and a lots of gold call options at low exercise prices were sold as well. While it only represents a small proportion of its total reserves, it does not match its production profile (in a bad way), it only exacerbates the perception. RSG has always said that its hedgebook is very flexible and they can roll it over. This has appeared to be the case so far, but the market has already seen CRS go down due to its hedgebook not to mention SGW, and PAS (the old ZFX). However, with the source of funds from potentially selling PDN shares to fund Syama, they will not require further hedging and their production profile will increase significantly and reduce the risk of the awful hedgebook in a big way.

3. Tanzania risks - two bits to this. The big one is that the Tanzanian tax authorities claim that Golden Pride has massively underpaid taxes and as such have slapped a massive claim on RSG. RSG claims that Tanzania has done this to all the mines and vigorously denies their claims. This would lead to the suggestion that it should be resolved with possibly a settlement that would be acceptable to both parties. However, Tanzania has also announced that they are now looking at how they can benefit more from the mining boom by potentially jacking up royalties and taxes generally, but RSG claims that it should not be a material increase. The second issue, is drought risk and lack of water for ore processing..something to keep an eye out for.

4. This is a more recent development totally related to VUL and their JV with SMM on Valhalla and Skal. SMM have taken RSG to court claiming that RSG may have supplied confidential information on the JV to PDN which would be a breach of the JV and would result in SMM being able to buy out the other half at a discount to a "market value". RSG and PDN have refuted this claim, and PDN have said that all their info was from public sources and in conjunction with their knowledge of the uranium industry (as they currently are developing Langer Heinrich and working on another). However, RSG have indemnified PDN up to $75mill if SMM was to be successful in their claim. This would mean that RSG could lose around half of the proceeds of PDN share sales (at $5 per share) should SMM succeed.

These are the issues I see holding RSG back. Hopefully soon, they should all be resolved positively, and when they do RSG's de-rating (or discount/penalty) will be removed.

Overall, though I think RSG is very cheap. In addition, they have many other promising exploration plays as discussed above around Golden Pride (incl. the Nyakafuru JV with IAMGOLD which has already identified several hundred thousand ounces, plus several other areas), a couple of others in other areas, plus Syama and Finkolo, and let's not forget the massive grounds at Ravenswood which also have massive exploration potential.

RSG is one of the most leveraged to the gold price as Syama is likely to be a high cost operation, and Ravenswood is currently a very high cost operation currently (but will improve with Mt Wright). So, if gold price stays above $550 USD then RSG should do very well, and if (like me) you believe that gold is likely to be above $650 USD soon and stay above there for a few more years on average, then RSG should do spectacularly well.

Just my opinion, please do your own research.