the case for gold miners, page-6

Zugs,

I always look for 'the catch' too. When you find such a glaring anomaly - price just doesn't match the fundamentals - it is natural to doubt yourself and your analysis.

I have a couple of suggestions.

(1) PROFIT HIATUS. Because Troy has been in a gap between projects - they had finished mining at Sandstone and at their Sertao project in Brazil (now mined out), and was in the development stage at Andorinhas, they made a loss last financial year. So they are harder to value than a producer that has a full 12 months stabilised production under their belt.

(2) 50% MARKET CORRECTION - this has dragged everyone down - many good gold companies included. As the Troy's MD points out, there has been forced selling.

(3) UNCERTAINTY - strangely, the market hates companies sitting on lots of cash. The 'not-knowing' what TRY may invest in creates doubt, and uncertainty. Even though TRY's last gold investment (Comaplex) returned 77% in 18 months. And TRY has paid a dividend for the last 8 years in a row. Rare for a goldy...


Like many contrarian investors, I like to invest in two sorts of companies - ones that have dramatically underpriced CURRENT OR FUTURE EARNINGS, or ones that have dramatically underpriced ASSETS.

In TRY, you have the coinciding of a company well below their NTA, AND well below fair value for their (future) EARNINGS. Currently producing gold at record prices, and with a robust margin of safety. Whilst unhedged, this is NOT a company, to quote other miners, 'highly leveraged to the gold price' - which means close to their cash costs. TRY's estimate cash costs for the 5-year life-of-mine are BELOW US$300oz.

It really is rare to find such a company, which is a cheap ASSET buy, AND INCOME buy.

In 6 months time, once the 50,000ozpa is ramped up and the high grade is being mined, $1.00 will be a distant memory. Just one of those market anomalies that comes along every so often.

And the gold sector as a whole has a few of them. You do not have to be a goldbug to find value in Australian gold companies at the moment.