after winter comes the coiled spring

I've just re-read the investor presentation from March this year and management's bemusement at the under-valuation of SBL was palpable THEN. Now the share price has halved, courtesy of a $5m capital raising at what WAS a heavy discount to the SP then prevailing of 3.4 cents. It currently sits at 1.7 cents -precisely half - despite the fact that first gold production is slated for Q4 2010 or Q1 2011. In my opinion, here is why should investors take another look at the company:

1) its in-ground / oz value is a fraction of even its lowest-rated peers in West Africa. Many are trading at above $60 / oz while SBL is now around $12 / oz.

2) the re-commissioning of the treatment plant that should deliver first pour is well under way and the Konongo tailings should provide profitable mill-feed for years to come at very low cost. These tailings which became uneconomic at a gold price of $300 / oz are now hugely profitable with gold holding around $1,200.

3) the upside for those who add to their investment or buy in now is that the company has effectively staged a 50% mark-down sale despite adding $5m cash to carry it through to first production. That is galling to those like me who bought in before the raising but I have worn it because getting into production the quickest way possible suits me just fine. Even first stage production of 20 - 25,000 oz per annum should see the SP revalued in multiples.

4) ongoing exploration on the world-famous Ashanti gold-belt is likely to add significantly to SBL's current 1.2m oz JORC-approved. While the grade of the tailings is naturally low, extensive drilling over the 12km site has delivered very exciting green-field grades which should sweeten the bottom line considerably as production gears up to a planned 100,000 oz per annum.

All in all, if gold prices hold above $1,000 (and there is every sign they could go towards $1,400 in my view) and SBL gets into production within the next 6 - 8 months as planned, I am looking for a SP closer to 10 cents than the current 1.7 cents. The market simply will not allow a company with significant production to languish at a market cap of just $20m.

Consider that when production of 100,000 oz is reached, on very conservative estimates the company should deliver profits of $70m per year assuming a gold price of $1,100 and deducting 50% for costs (from what I have read, SBL's production costs are actually likely to be in the lower quartile of sub $400 / oz). With a conservative P/E ratio of 8 factored in, anyone care to calculate where the SP might be? It begins to get exciting, doesn't it.

You can only wind a spring up to a certain point before the coiled energy is released. A decimated SP has certainly wound me up! Now it's time to break out.

DYOR as I have a strong vested interest in the outcomes mooted above.

Gupper