A floor under the SP, page-84

NFI, I can only guess that someone else has tweaked to the same things that I tweaked to.

To start with, you've got 4.5cps in term deposits earning a slightly better than market rate of return (obviously term deposit rates fell with the last RBA rate cut), so that means that the 4.5cps in cash is actually worth a tiny bit more than 4.5cps. The floor valuation, assuming a zero value for all of the iron and gold ore should be 4.5cps.

I agree that the iron ore project is near enough to worthless right now and I can even conceive that, in 2015 dollars, that iron ore will never again breach $100 for as long as I live. Accordingly, I've ignored the iron ore aspect of this stock.

The combination of cash and gold however makes Hawthorn a very interesting stock to effectively bet on central banker incompetence (or at least impotence). This is because there are three possible futures before us in respect of fiat currencies:

1. As baby boomers retire and pay down their debts, the amount of money in our financial system will contract, which causes (amongst a whole lot of other things) deflation, which is simply an increase in the purchasing power of currency.

2. Central bankers have been desperately trying to stave off deflation by printing money en masse, cutting interest rates to near zero, and doing just about everything in their power to debase the currency that they control. This should, in theory, cause runaway inflation, or,

3. The balance between inflation and deflation continues to be maintained, as it has been over the past 7 years.

Under scenario 1, Hawthorn's cash holdings should increase in purchasing power, and so it would be reasonable to expect that I should be able to, at some point, sell out at very close to cash backing. In the crash of 1929-32, the only long-only strategy that made money was buying companies at discounts to their cash backing and selling out at cash.

Furthermore, under this scenario, the cost of building the 30km haul road to connect the Anglo Saxon gold project to the Saracen network will likely fall from the estimated $2m today, which is basically another free kick from the current SP.

It can even be argued that price deflation is already well underway in mining services, which is ultimately good for miners like HAW.

Under scenario 2, the price of gold will skyrocket, which will massively change the economics of our gold resources, and Hawthorn shares will multi-bag from current levels. and

Under scenario 3, shareholder returns will probably move more or less in line with the returns on term deposits.

I think that people are foreseeing a future under this last scenario because that is what we have historically experienced over the past twenty years. But even in that event, we won't lose.

Management and directors seem rational and honest even if they weren't particularly shrewd in boom times, which is more than can be said about plenty of other junior miners.