congrats on our marriage with keegan, page-6

Disco Stu

Sorry but my brain has pretty much stopped working over the last week or so. Partly due to having difficulty falling asleep (been sleeping only 4-5 hours/day starting from around 3.30-4.00AM). The really hot days got me down also. What else can an older guy expect, I suppose.

So my views are not worth anything.

Obviously PVM wanted the $210m cash on Keegan's balance sheet rather than its gold. Getting hold of cash is getting harder so they took the easier road. I think that is why AMX, GRY and AZH (all with reasonably longer term prospects) are being killed. Even PIR holders are finally seeing the same. This could be shorter term sentiment or it could last for 12-24 months - I dunno.

In very simple terms PVM shareholders are getting 50% of the new company, and has 417m shares on a fully diluted basis (ie post exercise of its options). This means that in terms of PVM's current shares position there would be 834m shares out there in the new company.

Lets say they reach the 220k ounce annual production in 2014 from Obotan, then what would the share price look like if we assume a $AUD1600/ounce POG, total costs (ie not just cash costs) of $AUD900/ounce (perhaps a tad under-estimated as it could be closer to $1000-1050 so do your own figuring), and a PE multiple of 10. The tax rate in Ghana is 35%, and 10% of the operation is owned by Ghana.

So very roughly there would be earnings of 10.8 cents per share which implies a share price of $1.08. This does not include a value for the company's other assets (the Keegan deposit, cash etc). So perhaps you could add an extra $350m which is Keegan's current market value. This would mean (834 x 1.08) + 350 = 1251m, or $1.50 share in 2014. What is today's value given the uncertainties until production starts and proves they can achieve the targets with existing funding - I dunno.

Another way of valuing the company is to compare it against some peer company, say PRU which I think is now producing at around 260k ounces pa and has a large deposit in the Ivory Coast which it had plans to develop by 2014 (to bring total production to around 450k+ ounce pa). The current market cap is around $AUD1040m (well down from its peak). 220/260 x 1040 = $880m, or $1.055/PVM share. One complication with PRU is that there are issues with getting the extra mine up in the Ivory Coast due to them wanting to introduce a super profits tax on goldies so PRU is holding off going ahead with this project until the govnuts have decided what they will actually do, and perhaps the market is discounting the value of that project. Also PRU has considerable hedging (over 200k ounces at a lowish price).

There are lots of key assumptions - POG, costs, taxes, community investment requirements etc

I hope this is not totally confusing. As I said my little brain is not working too well these days.

Good luck whatever you decide.

loki