Ann: Gwalia Mass Extraction Feasibility Study, Guidance & webcast, page-111

Traders will trade but my back of the envelope calculation tells me this.

SOI = 524,290,599
Cash = $A357M less recent dividend ~A$21M = A$336M
MC at $3.29/share = $1,725 M

Profit from operations FY2018
~$219.4 M from Gwalia and $77.8 M from Simberi on gold sales of 400,956 ounces at an average sale price of $1,699 and group AISC of $891oz, total Profit $297.2 million

Profit from operations FY2017
~$219.6 M from Gwalia and $51.3M from Simberi on gold sales of 380,173 ounces at an average sales price of $1,685/oz and group AISC of $907/oz, total Profit $270.9 M

From today
Gwalia guidance FY2019
235,000 and 240,000 ounces (previously 245,000 to 255,000 ounces) at an AISC 6 between A$980 to A$1,000 per ounce (previously A$930 to A$970 per ounce).

Gwalia guidance FY2020 costs unspecified

"Production for FY20 will remain ventilation constrained until the additional ventilation from the Gwalia Extension Project is available, as forecast, in H2 FY20. Production in H2 FY20 will compete with development associated with GMX, with the outlook for FY20 now anticipated to be between 200,000 and 220,000 ounces."

So what can we do with that lot. The profits at Gwalia for 2017 and 2018 were generated on 261kozs and 271kozs of sales respectively.

So for 2019 expect margin of say average $770/oz assuming an average gold price for FY2019 of $1,750 (2017 margin = $778/oz, 2018 margin =$808/oz)

So margin for FY2019 should be about the same as FY2017 expect with FY2019 production guidance group = 367,500ozs using mid-point for Gwalia and top range guidance for Simberi of 130koz.

So adjust FY2017 profit on a declined production basis of 380,173oz - 367,500ozs =12,673oz, ie profit for FY2019 should be about 3.3% lower than FY2017 given margins are going to be aproximately the same (asumming all else is equal)

ie assume FY2019 profit of $262 M

Now considering there is absolutely no cost guidance for FY2020 and we have been told FY2020 will remain ventilation constrained and there is no cost or production guidance for Simberi for FY2020 that I can find it is impossible to estimate potemtial profits for FY2020. Based on this uncertainty I will risk my FY2019 profit estimate by 11.6% for the fall in expected production guidance in FY2020 and another 10% due to unknown cost guidance at Gwalia and unknown cost and production guidance at Simberi to get a profit for FY2020 of $205.4 million.

OK now we have something to work with.

1) Current cash + Estimated FY2019 Profit + FY 2020 Profit = $366M +$262M + $205.4M = $833.4M

2) Current MC at $3.29/share = $1,725 M

Subtract 2) from 1) and you get $891.6 M which is the value of SBM which is floating on a lake of risk.

I'm personally a cautious investor who believes that the near $16 trillion in debt fuelled liquidity that has been pumped into US stock markets since 2009 can not continue and there is consequently significant downside risk for all companies whose share prices are supported by major funds (even in the gold space) over the next 2 to 3 years.

Taking this into account and the almost 100% uncertainty about the future of Gwalia past 2020 I think it is reasonably fair to discount the above $891.6m figure by 50%. Personally I would apply a bigger discount.

That leaves a value of $1,279 million or $2.44/share

I don't short stocks but considering todays announcement and the inherent uncertainty that it brings a short position with the above close out target could work over the next 2 or 3 years IMO DYOR. Of course if the uncertainty is lifted one would reciew this position. Esh