Issues with GRR

Just had lunch with a mining analyst who has had a long MGX, short GRR pairs trade for the past few years which has been very successful for him. There were a few wines involved and there may be bits which i've left out but the notes i wrote down include:

Management: we all know about this, they seem more intent on doing what's right for Shagang than for all shareholders which may be right considering they own 47% of the company. Corporate Governance is also poor which doesn't give any confidence to analysts.

Profit: He said that GRR's annual results are always suspect because they capitalise a lot of expenses onto the balance sheet instead of sending it to P&L. He says analysts won't pay much attention to companies who only disclose C1 cash costs and not "all in sustaining costs" which includes mine development costs, pre-stripping, sustaining capital (new trucks and machinery), depreciation etc. He says GRR actually makes half of what they claim once this is taken into account. Further, the +60m addition in PPE and Mine Properties/Development on the balance sheet this year and the reclassification of PPE into Mine Properties this year was very strange. Along these lines he says cash flow is king, and cash flow from operations + investing is always much lower than their reported profit. Because the profit is suspect, the supposedly low PE ratio should be taken with a grain of salt too

Melbourne Property: Only 4/13 apartments have been pre-sold across Lumley Court+Malvern Road, 5-15m worth of write downs should be factored in especially if the market gets worse. That's a 0.5c or 1c dividend that could have gone to shareholders. noone knows why they got into this business.

Southdown: He says won't happen as too many people have looked at the Karara project and how it has been a financial disaster (part owned by GBG). The economics of building new magentite mines aren't there.