under nta, page-3

Guido cannot control the SP blackjack. His focus is/was on managing the company. The recent weakness has provided an opportunity for people like me to accumulate, however I havent been buying in recent days. This is only because the SP could go lower - purely on technical behaviour. Timing is important and I use a mix of 70% fundamental, 30% technical analysis. I am also a contrarian investor so I like turnaround plays. In saying that I havent timed things to perfection; I am down 35%, my average is $0.44. In my opinion I am accumulating in or around the bottom. Anything below $0.55 is cheap.

In a previous post I mentioned two factors that I believed were impacting price; POG & Index funds. It looks to me like the strong selling pressure from these two influences are gone and we are only seeing accumulation. I agree, the SP is going down but if you watch the depth as closely as I do you'll notice that the buy side isnt 'thin'. There are lines of stock being bought for 25-30K at at time. The sell 'stack' is greater, but the buy side wouldnt be considered thin. The first 10 lines are often evenly matched.

The recent write-offs in the half year provided some anecdotal evidence that the business was positioning itself for a round of increased profitability and good news. The latest MD appt confirms this for me. Raleigh is going to look like a genius this year, AND this half. The Red October update is literally around the corner - as I had flagged previously, due end March/early April. We may find this in the next quarterly. We'll have to wait and see.

On the forum there has been some specualtion on dividends; its not going to happen in the ST. There is no cashflow to support this. The CDO expansion will suck-up all of these funds. There has also been suggestion of management/performance options being bought on market; thats not going to happen either. Again there is no cash, and companies do not 'fund' options. They are granted - at dilution - but a nominal amount equivalent to exercise price x qty is received when the directors 'pay' for these. Having said that, there are clauses which enable them to exercise without payment.

I have talked to Guido in the past about the SP performance. His view is a logical one. Essentially there are a few factors at play which has conspired over the last 12-18mths:

1. Communication of higher operating costs, indicated in 2012 (but have subsequently improved)

2. Speculation of an equity raising, which was never going to be the case.

3. General outflow of funds from the gold sector, and/or re-weighting to companies with stronger free cashflow

4. Market preference for yielding companies

5. 2-3 Downgrades from brokers during the year.

These comments are so important for me. What should be obvious is that only point 1 can be controlled by the company. And, as we know, they are bringing cost down from $1000+oz, to $850oz. Its only a matter of time before the tide turns. There is operational and exploration upside. Exploration has really got me excited of late. This diagram is worth a thousand words: