questions to ask., page-20

Defplayer, Bogun,

I agree the risk was not hidden, but it wasn't particularly well understood by investors. This may be a caveat emptor or buyer beware type of error on behalf of the investors who, arguably, should know their product...but equally so, the JORC code and professionals involved here ought to have insisted more strongly on not mining without a Reserve. Mining without Reserves is little better than panning for gold in a river.

I think the ASX and AusIMM should hold much more regular info seminars for novice resource investors. Geology, and economic geology in particular are dense and complex things for the layman to understand, but there are a few easy principles I think could be communicated easily to help people understand the difference between a Reserve and a Resource, for a start.

I missed the fact Matthew Gill resigned, but clearly he was one of the good type of guys who would have insisted on no mining on Inferred Resources.

As for discussion of risks, you can choose to wear a certain amount of risk in a company producing metal - for instance, the company I work for wears a hell of a lot of risk internally in the way it does its business, and I have had to put my foot down on some issues relating to quality control, even at my junior level. They do that because the risk is an underperformance of a few percent or, all up, a couple of million bucks. They however, have no debt and can wear a million buck error either way.

MON, however, was beholden on debts and was taking more debts on each quarter. MON and its directors, who have an obligation to further and protect the interests of the Company and its shareholders, and make decisions in the best interest of the shareholders, should not have had an appetite for controllable risks which were not controlled.

By this I mean, if they had to drill some holes into Walhalla to see if it was a crock of scrabbly ore, this risk is controllable and should have been controlled. They should have had the professional discipline, as I do, to look at a resource and say;
- do I believe what is there, is actually there? IS it as continuous as I think it is (ie; the well known risk of the nugget effect of gold mineralisation understood by variography, etc)
- is the evidence of the metal in the ground reasonable, based on fact (controlled risk), or are suppositions based on suppositions (uncontrolled risks)?
- are we satisfied in the assaying and surveying of the resource? ie; is it where we think it is (controlled geographic risk) and of the grade we think it is (assaying risks)?
and so on and so forth.

The thing is, variography should have told them Walhalla was nuggety and discontinuous. Their existing data from Croesus would have shown them warnings of this, they could have then analysed it, drilled some holes to confirm it, and cut the grade via a top cut which reduces the nugget effect and controls the risk of the grade being less than what you believe. However, it wouldn't have eliminated it. Perhaps they did this, but it seems they at least didn't do it well if they were surprised on the downside.

A disciplined, professional company would have asked, as we asked, "Whats the dollar cost risk of us mining Walhalla and not getting the grade we think is there?". They would have been able to quantify the cost in terms of a range of dollar figures, and then asked a second question "If we make this loss, will it send us bankrupt?"

Thats the major question investors need to see the answer to - were MK and cohorts aware of the risks, did they dig Walhalla knowing that they could go bankrupt if their gamble (an action taken in the face of known risks to attempt to make money) didn't pay off?

I'd say they did. I think it would be a particularly naive board and senior management which would be unaware of the risks they were taking and didn't know what they could do if uncontrolled.

I mean...having worked alongside some ex-Rio and ex-BHP guys, the one thing those two super-majors do well is control risks.