Gold's going lower and so is LHG, and even if I'm wrong about...

Gold's going lower and so is LHG, and even if I'm wrong about gold, LHG is still going lower.
Have a look at the last 30 days comparison of LHG shareprice (down 3.2%) vs. the increase in Gold in US$ (up 4.7%) and in A$(up 2.7%)

Divergence, that is not a good sign in this instance. Whether it is related to hedging or other issues, the fact remains, it has been falling while gold has increased in both US and A$.

LHG has a less than impressive performance in the past, and there are better options elsewhere.

With a profit downgrade of -8% for 2005F issued by ABN-AMBRO Aug 2004 there better be some good news to turn this Titanic around.

ABN-AMBRO Morgans

Valuation and target price
Our valuation of A$0.67/share has been reduced from A$0.71/share due to a
reduction in the cash balance during the period. The mine generated no positive cashflow in the first half, capital expenditure continued (albeit at a slower than forecast rate) and will now be higher in the second half if the company™s full year target is to be maintained. Our target price of A$1.10/share is at a 64% premium to our valuation of A$0.67/share. The shares have traded at between a 10% discount and 100% premium to the ABN AMRO NPV of discounted cash flows, reflecting LHG large
resource base and option value in terms of expansion potential. The level of the
premium is generally related to the momentum of the gold price.
We have maintained our hold recommendation while we reviewing our forecasts and the impact of the addition of a flotation circuit, which could be commissioned in 2007.
Besides gold price risk, risks to earnings and share price include the potential for the LHG to disappoint in terms of production and operating costs. Rio Tinto's stated plan to sell non-core assets, potentially including LHG although not specifically detailed, increases the chance of 14.5% of LHG hitting the market or weigh on the shares' performance as an overhang. A negative gold price outlook and poor cost performance would see the share price fall through our target.

Wed28 July 2004

Going below $1.00