gold & producers up ... mun down 12%

Recently, I have bailed out of all my MUN which has proved to be one of my most disappointing investments in the gold sector.

When MUN was one dollar early in 2008, moving towards projected very cheap gold production, I never dreamed that in the following year with gold approaching US$1100 MUN would be trading below 30 cents.

I guess what that shows is the market punishes companies that raise hopes and then fail to deliver, as MUN has done at Engenho. To understand what I mean the following was released to the ASX on January 31, 2008 in the December 2007 quarterly report:

"Forecast Calendar 2008 production ~32% above budget (25,583oz), with forecast annualised production ~21 % above budget (34,000oz).

Forecast cash operating costs ~5% below budget (A$325/oz).

EBITDA forecast at A$17M per annum at US$750/oz gold price."

MUN has never come close to that. People made serious investment decisions based on information like that. It's pretty obvious their expectations have not been met.

For example, in the recently released September 2009 quarterly we find that gold production for the September quarter was just 6,440 ounces. The June quarter was only 6,154 ounces of gold. This is well short of the 8,500 ounces per quarter expected prior to production.

But is MUN making plenty of money, even though gold production is a few thousand ounces on the light side, because cash costs were meant to be fantastic at just A$325/oz.

Unfortunately MUN has failed to deliver on that, with cash costs for the September quarter being A$751 per ounce compared to the June 2009 quarter of A$698 per ounce.

In the light of an e-mail that has been posted in this place there were some safety issues which affected access to some gold and so production in the September quarter.

Of course MUN is to be commended for making the safety of its employees its number one priority. However from a gold production point of view one wonders how often MUN's gold production is going to be affected due to mine safety issues etc.

We all know MUN had some production issues last year and borrowed funds from their major shareholder who thankfully was supportive.

It's not as if MUN is rolling in cash. The quarterly showed that cash at 30th. September was only $828,000, a decline of $342,000.

The September quarterly mentions that Torrecillas should have "operating costs expected to be less than US$400/oz" and "targeting first production by late 2011."

This is two years down the track and frankly in view of the huge discrepancies at Engenho investors may well be right to take that with a grain of salt.

Finally, I have learned through the years to become very wary of any gold producer that is falling in price when the gold price and other gold shares are rising.

MUN is a gold producer that is falling in price while gold shares and the price of gold is rising.

In my opinion there are many more exciting gold plays out in the market. There is no need in my opinion for me to risk an investment in a small gold producer low on cash that has had some gold production issues.

Good luck to everyone who remains loyal to MUN.