For those that believe the gold price is not manipulated, read the links below. If Libor rates are manipulated to give the markets the impression that everything is OK, then I would be pretty confident that the same is done to gold- as GATA has been arguing for years. The problem with manipulation is that it is always only able to slow the inevitable, not prevent it. Hence the long term uptrend in gold that we have seen/are seeing. Manipulation implies the POG is too low -as I believe it is based on money supply increases, and that it will continue to trend much higher over time. Yes I am bullish on gold, but with ABU I do not need to see higher gold for strong upside which is why I prefer ABU to any producer. For me a higher POG not only means strong upside for OP but it means even stronger upside for us through Buccaneer. I recently showed how $2500 gold would push the valuation of OP up to more like $470mill which is an increase of $213mill from the current $257mill scoping study estimate. Most gold stocks would likely double or better on a $2,500 POG so based on OP alone we might not do any better than other gold stocks except through resource upgrades. More significantly though Buccaneer would be worth around $1.5bill at $2500 based on 1.6milloz of the 2.6milloz resource being mined and conservatively assuming Buccaneer has a zero NPV at $1600 gold (add 1.6milloz multiplied by $900/oz increase in POG to a current assumed zero NPV). There is upside to that if more than 1.6mill oz of the 2.6mill falls within a pit design and also through exploration and if the NPV is shown to be well above zero at $1600 by a FS. As the company reports, there are similar projects to Buccaneer operating profitably at $1600 and lower. We are not paying for Buccaneers upside at 4c/share. So while we have maybe 100% upside potential to OP valuation -from 8c (similar to many other gold companies), Buccaneer gives us the leverage to increase our total valuation by a factor of around 8 from the current valuation based on OP alone (of $257mill). Those numbers are pre corporate tax considerations though (as would be the upside for any other gold company).
Many will argue I am too bullish on gold but many argue for much higher prices.
In any case my argument is this; We can buy (or hold) ABU at around 4c while the scoping study suggests it’s worth 8c on an already out of date pit design, and with all the obvious very large exploration upside to add to the value. Chances are we will at least double our money as we move towards production or much earlier on strong exploration success (and then perhaps triple or better as we near production if we have inceased resources by 50% or more). Even if I am wrong re gold and POG falls, OP is very low capex and very high margin. It will very likely go ahead anyway and additions to the scoping study outcomes through exploration should more than offset any potential fall in POG (especially measured in AUD if gold falls through a strengthening USD). I.e. we will probably see the sp double over time regardless while most producers would likely decline if POG falls.
What if I am right though (as small a chance as some might think it is?), or if these other guys are right and we see $3500 or $5000. If POG does rise to $2,500, are we better off holding a producer which will likely double in valuation or ABU which is likely to see its valuation rise by a factor of 8 (pre tax). Keeping in mind the 8 times is based on the current $257mill scoping study estimate- i.e. 8c. That implies 16 times upside potential from 4c to 64c I know that sounds too wild for many but I have seen enough to know otherwise. I bought Andean (AND) at 9c thinking it might rise to $1 for a ten bagger. It rose by a factor of 77 instead. Or more recently SLR rising by a factor of 30 from a low of 13c to 3.90 over just 3.5 years, or NST up by a factor of 37 times over three years. Yes NST came up from a GST low, but Andean was 9c well before we saw the GFC and it rose by a factor of 77 regardless. After seeing gains like those a factor of 16 seems more plausible. The ingredients are there.
For now I will be much more conservative, but I understand the blue sky potential that I am sitting on, and yes I also understand the risks, and I like the risk/reward very much. The main risk for me is mining approval but considering we have mines near and around us, that risk should be very low. I will more conservatively sit and wait for 8c. We might have to wait for a mining approval to see 8c but by then I expect we will have added plenty of ounces at OP and I expect I will increase my target on OP to 12c or higher soon enough. By the time I see 12c I expect to see a much higher POG so again I will likely increase my target. Chances are I will be in ABU for the long haul because I expect my idea on base case valuation will keep rising through exploration and POG before the sp reaches each target. That is until we see a bubble in gold years down the track and when I see that is when I will likely be selling. Interesting times ahead for the gold sector and especially for ABU.
“The Libor scandal is spreading fast. Former Barclays CEO, Bob Diamond, testified before parliament on Wednesday. Diamond was forced to resign due to emails showing that the bank rigged Libor downward. Before Diamond's testimony, Barclay's released an email intimating that the directions to lower Libor was actually coming from high government officials. The accusations are "mind-blowing" if proven to be true, says Matt Taibbi, a columnist for Rolling Stone.” “High Libor rates suggest that banks are worried about the soundness of each other's business. Lowering Libor keeps markets assured.”
“Jim Sinclair, the man who called for $1,650 gold in 2001, writes that the recent events in England was the last chain holding back gold, and now bullion is heading higher, way higher. The CEO of Barklays Bank PLC, Robert Diamond, was forced to resign due to a rate-rigging scandal. The bank is being investigated for unfairly influencing the London interbank offered rate or Libor, and there are hints the scandal may be wider than just Barclays. Other top financial firms may be implicated. Sinclair believes with the scheme now being exposed, bankers will have less tools to manipulate interest rates and commodity prices:” “The Bank of England turning their backs on Barclays, the company who did their bidding, will be the event in time marking the trend change. Many of us in our areas of activity will successfully fight the Riggers.”
ABU Price at posting:
4.4¢ Sentiment: Buy Disclosure: Held
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