Reading their two reports (Inferred Resources and Probable Ore...

Reading their two reports (Inferred Resources and Probable Ore Reserves) of 2005 on the web site highlights several relevant points:

1)They added two mining factors into the Inferred Resource - a minimum ore body width of 1 metre (which dilutes the grade of narrow intersections), and a payability of 30%, which discounts the tonnes by a massive 70%. This reduces the risk in the Inferred category. They are confident 80% of Resources will convert to Reserves.

2) They used the lowest density of 2.7 tonnes/cubic metre, knowing that at ore grades of 10 g/t the density rises to 3.2. This means each cubic metre could contain an extra 20% of tonnes (and therefore ounces at the same grade. The ounces are understated by at least 20%.

3) They used a high cut-off grade of 7 g/t to get the 330,000 ounces in Reserves at 2005 gold prices. At today's prices, the cut-off is about 3 g/t for a profitable mine ( 1 g/t is worth about A$40, so 3 g/t is worth about A$120 a tonne, which is a benchmark mining cost per tonne - about $80/t mining and $30/t processing plus $10/t admin). In their Reserves report, the tonnage-ounce curve shows that at a 3 g/t cut-off, the Probable Reserve is 700,000 ounces with an 85% confidence limit. The head grade reduces to about 8 g/t as more low-grade ore is include, but still quite respectable .

4) A Reserve ounce can be valued at the current profit margin per ounce times the confidence limit (say A$700 per ounce, with their cash cost of $470/oz and current price of A$1280/oz. This values the Reserve at 700,000 x $700, or A$490,000,000. So the asset backing of the Reserve for the share price should give them a market cap of $490 M compared to the current $140 M (3 times higher than present) so the share price just based on the Rserve backing should be 3 times higher than present, or 60 cents.

This is a very undervalued company.