The below are sourced from the 2nd Qtr Activities Report 28/7...

The below are sourced from the 2nd Qtr Activities Report 28/7 (Q2) and Third Quarter Activities Report 25/10 (Q3). A couple of readers have previously not understood the figures so I will go through it plain and simple step by step and substantiate the source.

To me in summary LHG represents a HUGE RISK to the DOWNSIDE. It has little potential to recover for years due to its poorly managed HEDGEBOOK. Its current production costs are around US$339 approx (Q3, p1) whilst its hedge commitments are locked in at US$332 (Q3, p.4) average. This in itself implies for production it delivers to its hedge commitments, there will be a loss.

More importantly, it's poor hedge book is EXPOSED by the fact it has HEDGING COMMITMENTS of around 2M OUNCES comprising of forward contracts locked in at US$332.32 and SOLD Call Option contracts 255,000 ounces at US$329.13 - i.e. also has an obligation to deliver) and 275,000 effectively worthless Put options bought. This compares to its current annual forecast production for FY2004 OF MERELY 600,000 ounces. Therefore, in layman's terms, given the current gold price is $US457, it is losing money on around 2M ounces (total hedge commitment) - 600K (expected annual production) or 1.4M ounces x US$ (457 - 332). More importantly the CURRENT HEDGE PROFILE EXPOSES IT TO A RISK THAT IT MAY RUN OUT OF CASH SHORTLY.

As the gold price further rises, it is at a greater risk to in fact to become technically INSOLVENT!!!!!!! Refer to both Q2, p5 and Q3, p4 and its accompanying comments which are consistent with the above analysis. In Q2 , LHG says about its hedge book "the mark to market value at June 30th was negative US$166.4M based on a spot price of US$395.80 compared to $US205.3M based on the then prevailing price of US$423.70. Similarly in Q3, the figures are US$190M based on US$415.65. SO WHAT DOES THAT MEAN FOR THEM NOW. The Gold price has risen from US$415.54 per ounce to approx US$457 per ounce which should represent an ADDITIONAL HEDGE LOSS of around US$60M since Q3 which is yet to be reported (based on mark to market valuation).

Is all this significant? HELL YES!!!!!!.

In Q2, it managed 1st Half sales Revenue of merely US$100M yielding a net trading loss of US$2.2M. In Q2, (Appendix 4D, p1) it had a NET Cash Balance on hand of around US$87M. Do you think the above move in the gold price has not hurt them? The hedge loss was US$166.5M at that time mark to market but not crystallised based on a Spot Price of US$395.80. Since Q2, the Gold price has risen to US$457. Based on the quoted figures in Q2 and Q3, the HEDGE LOSS SHOULD NOW BE AROUND US$250M MARK TO MARKET RIGHT NOW WHICH THEY HAVE NOT CRYSTALLISED. Surely the directors are having sweaty palms and lost sleep over the on going rise in Gold price. It loses an additional US$13-14M per every US$10 RISE in GOLD price. The IRONY is that it not only can it not benefit from a rise in the gold price but if GOLD rose just slightly higher, it could in fact RUN OUT of WORKING CAPITAL. At US$460 per ounce, it should almost exactly exhaust all of its NET CASH Position, based on (Q2, App 4, p1). It has only an additional $19.5M debt facility left or a merely US$13 rise in gold price!!!!!! THIS ANALYSIS IS NOT WRONG. DO THE SUMS. IT IS EASY. You don't have to be a financial genius to work this out. AND that is why the Large Institutional Investors avoid this stock and have Still been SELLING. Why else has LHG dipped to $1.23 based on Gold last Fri at US$453 per ounce whilst it was $1.34 a month earlier when gold initially hit US$427. Think ABOUT it and thank me later.

ONE MORE TIME, for those who want it summarised. SIMPLE ARITHMETIC. Hedge Book exposure 1.7M ounce in hedge forward contracts, and over 250K ounces in WRITTEN call Options both at price at around $US330 per ounce totals nearly 2M ounces with $ for $ risk upside on its hedge book. Production is 600K ounces per annum leaving a gap to this upside risk of 1.4M ounces. These figures nor can the accompanying comments of their Q2 and Q3 reports be Disputed. If they go Pre-market some time this week for an update for either 1. a Rights Issue 2. Closing out of Hedge contracts and thereby recording a large Book loss 3. Increasing their Debt facility (if anyone is willing to do so), you will know where you heard the detailed analysis first.

How you think you may benefit from this kind of insightfulness I will leave it up to you. As by rules and regulations that is as far as I can say.