wilson's assumptions - are they valid?, page-3

kgc,

Thanks for those comments. They are balanced and consider the macro environment as crucial to HGO's own outcomes. Perhaps investors should become clients of yours rather than Wilson's... ;)

I find the biggest challenge in investing in resource companies in today's volatile world is that we have to make such large 'guesses' about the world economy and hence commodity prices. Tweaking a few key inputs, like the Cu price, the AUD USD exhange rate, and company-specific stuff like the mine throughput, cash costs and the life of mine, make a massive difference to our valuations.

We cannot entirely separate 'the fundamentals' of a company from the market. The large market swings impact the commodity prices which in turn impact the fundamentals of individual companies. They cannot be separated. There is a nasty feedback loop. And any assumptions are probably going to be wrong and by quite a lot.

Will Cu be at US$2.50/lb in 2012 and beyond, or US$5.00/lb? It is pure speculation, IMO. But depending on how you answer that question, it alters HGOs value by tens of millions of dollars, if not hundreds of miilions.

I guess the bottom line is we have to be comfortable that there is a big enough margin of safety between our buy prices and what we think companies like HGO are really worth. 21 cents, or Wilson's target of 58 cents? The truth, if there is such a knowable thing, probably lies somewhere in between... goodness knows where.

Yaq