hanging in, page-4

Be careful Swiv. understand the fundamentals of gold and watchout for the emotions

from Sprott...

"In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo. Thus, our recommendation to investors is the following: empty unallocated gold accounts and redeem your gold in physical form (while you still can), invest in allocated, physically backed products (like the Sprott Physical Bullion Trusts) or in those that have access to physical gold in the ground (gold miners)."

The Gold Miners are cleaning out their past mistakes and there have been many. $2b impairment here, $5b there.

Sprott however does not talk about a different class of company...a Gold explorer with Jorc compliant Gold resources in the ground, which are not in need of funds, and which are very tight with their cash spends, and can control important timing aspects of development. Timing is very important in most investment decisions. AMX is possibly in that category. They make all the right motherhood statements about reducing spends, but do not provide the detail seen by other companies. There are a few others, not many.

The Gold explorers are getting thinned out as many have been swimming gleeful with no cossies on, and now the investors can see this in their bank accounts. Big Boards, fat salaries for MD's and Exploration Managers etc etc.....not a good look for some.

And now we see the massive physical asset transfer going on from west to east, particularly evident in physical gold. China does not sell an ounce of the massive amount of gold it mines either, but thats another story, but it might be a reasonable bet that the physical gold heading east will not come back to the west. Interesting to contemplate the game here, but you can also bet that the west will write lots more IOU's of various flavours, until the cows come home (the gold will not come home). You can also bet that gold producers who are producing gold for an all up cost greater than the value of the sale of gold will stop very soon. Perhaps they might carry on a little in places like Sth Africa, but the cost of refrigerating their mines and enticing people to travel down several kilometres to work will catch up with them soon.


And so the best leveraged bet to me is on Smart Gold companies with JORC compliant Gold resources of either high grade or significant scale or both, with clear exploration upside. Especially those companies which are not having to pay a fortune per quarter for holding the gold in the ground. The smart companies should be trying to leverage up the value of their assets in the ground, perhaps by getting some more definition of high grade, if they have large low grade? The smart companies should be getting rid of all the deadwood they hired when the competition was tight to get good people. The smart company should get rid of bloated boards with members who will not be contributing to the companies value proposition in the next 12 months.
In fact they should get rid of all staff that do not contribute to the value proposition of the company now and in the next 12 months.

Some would say it is a CALL option. Best to have some notion on the IRR and NPV of the gold sitting in the ground, at various gold prices, when calculating the value of the Call Option. This can be sourced from a Pre Feas Study or scoping study. When you have done your homework, you can place your bets or not.

Another way of looking at it, is that todays price AMX has a Mkt Cap of $29.7m, it has about $21m of cash and 3.2 m ozs of Jorc gold. This equates to $0.40 per ounce, or less than a can of coke. It was not too long ago that gold exploration companies were valued at about $100 per ounce. I m not trying to be exact here, but just point out some approximations. Thats a large multiple difference. Interesting. All depends on the POG, but a lot are tipping around $1450 to $1500 in 12 months.

But don't get caught up in the useless and misleading commentary in the pain stream press. There job is primarily to sell stories to you to earn advertising revenue.

Now the Labor Govt is going to tax money in the bank. Shades of Cypress. No one knows where the monetary experiments are going to lead, but there is nervousness at the station, for the Colt from old regret (and there will be many for sure) has well and truly got away.

Good luck in placing your bets? Short term, Long term...and if you can make it on your terms.