company reply, page-42

Hey find8.

Well, seeing you kinda asked, my 2c take on it is this:

I'm basically filling my boots with all the MCO I can grab at sub 22.

I think with all the shenanigans going on around gold at the moment re the USD etc that the commodity itself is in for an interesting ride short term. The commodity may well continue to test lows - as I don't buy the argument that it's all about seasonal fluctuations. That said, I think the greenback is very much on life support at the moment and come the elections, the manipulation of the USD may be seen to have been unsustainable at best and catastrophic at worst. In short, I see very little to suggest that there won't be upward pressure on the $1000 mark medium term, and don't think the gold bull is over.

How long it takes to test that mark is really anyone's guess, I reckon. The signals are just too conflicting. We may well see gold stalled for a while and witness a corresponding shake out of higher cost producers (and note Newmont's recent comments about the Super Pit, cash costs there and possible selling out of it, SBM's recent fiasco etc) with penalties there both in terms of SP and production feasibility. This will mean low-cost operations like MCO become quite attractive.

On the flipside, if the commodity bounces, this junior may well benefit - albeit less so than current large volume producers.

In a way, it's kind of hedged both directions against POG trends. A pinch means that low-cost producers are proportionately more valuable. A rise means that all producers are more valuable.

Added to the mix, MCO is at just the right point in a junior's life cycle to invest in it (ie: after the initial exploration cycle has largely been done and when it is set to tip from explorer to producer).

The SP may well slip short term. Providing that doesn't have capex or opex implications (wrt the options coming on line etc) and the company stays solvent long enough to get cash in from production (even if that means another offering) then I think there's a golden mix of factors here:

1. Good management. I'm very impressed.
2. Reasonable chance of fending off a hostile low-premium takeover (and there may be a few of those coming if the OZ industry shakes out)
3. Reasonable chance of becoming a low cost producer at a good time (a couple of years) into a gold cycle
4. Resources that have a good chance of transitioning into viable reserves

I count this as a speculative buy. But it's one I'm happy to have in my portfolio. At the moment I'm largely out of the market and keeping cash on the table (I see no reason to be in bluechips while cash continues to outperform). So to buy into a company at the moment, I want it to be speculative but have high upside potential. I want it either to be looking close enough to breakout on a pure TA basis to be able to trade into and out of quickly, or to be so fundamentally compelling that I want in now, opportunity costs be damned.

For me, two stocks fit the latter. One is PEN (as a uranium play on America being able to export to India) and the other is MCO (as a gold junior who may well be perfectly timed to profit as a low cost producer from an excellent global gold market in a few year's time). No way I'd have anything more than I was willing to lose in MCO. But at 22c or under it's just far too good a punt to say no to.

Anyway, 'nuff from me. The above is why I'm here, and am happy to hear constructively from others (hey Micky!) why I'm dense if people think there are holes in the above reasoning.

Thanks for the welcome, lads. Hopefully we can share some cheap chardie at a celebratory AGM sometime.