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Sep 2008 - DnD - SLR, NGF, IGO

Silver Lake (SLR), Norton Goldfields (NGF) & Independence (IGO)

  • Post Diggers last year we wrote “This Comment started out based on the visits we (ERA) took during the Diggers n Dealers Aug 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel & gold favourites”. That comment applies just as easily for 2008 too, except that this time around the “money that did not exist” has mainly been in different forms of sophisticated shorting.
  • It is often commented that the market likes a story and hates reality, that’s why the old model of the share price rising when a company starts production has gone out of the window. Now companies rise before production and fall when they go into production as reality hits, unless they are still in “story” mode. Our current Australian based and operated favourites are all appear to be debt free, generating cash with cash in the bank, and significant upside potential being for nickel : Panoramic (PAN @ $1.45); in gold : Silver Lake (SLR @ $0.16) and in other (iron ore) : Territory (TTY @ $0.52). – And all of them have PERs in the 2 to 4 x area. (PAN : 194m x $1.45 = $281m, less $130m cash = $151m/$73m = 2.1 x; SLR : 153m x $0.16 = $24m less ~$3m = $21m/$12m = 1.8 x; TTY : 265m x $0.52 = $138m less $1m (check financials when reported) = $137m/$45m = 3.0 x) Our (ERA) current favourites are :
  • Panoramic : Recent August 2008 report, and stacks of upside both at Lanfranchi (due to Deacon) and at Kimberley Nickel due to Savannah. PAN recently reported some more of those thick high grade (double current grade) intersections, indicating further upside potential. Our report had a life of 10 to 15 years at ~15,000tpa - 20,000tpaNi (whereas it could be 15 to 20 years at up to 25,000tpa [which more resembles a portfolio stock]). The NPAT is about $70m per year at prices of A$9.47/lb Ni (US$9/lb and an 0.95US$ exchange rate, currently the nickel price at US$8.3/lb and a 0.81US$ exchange rate equates to 10.25A$/lbNi)
  • Silver Lake : We accept that the share price has fallen to as low as 15c, but how many gold mines are debt-free, treat at ~14g/t (July 2008), encounter 10m @ 6kg/t (6,000g/t in a development drive), have a development face averaging 57g/t, have the capability to double their mill size and could exceed our forecasts of 70,000ozpa by possibly up to 50% more in their first year, potentially generating profits of $1m to $2m per month.
  • Territory : Yes we accept that it lost heaps ~$50m or more last year investing in Monarch etc etc. But at Diggers it was selling its lump at ~A$110/t, fines at A$90/t, say A$100/t on a 50/50 basis. Costs are A$70/t falling to A$60/t (and targeted to go lower), say a margin of A$35/t, which at 2mtpa = $70m less tax = ~$50m NPAT less exploration etc = $40m (and revenues may be US$/t and not A$/t, so the figures could be higher).
  • At Diggers, we also visited Norton Goldfields (NGF) and Independence (IGOs) operations, viz :
  • Norton Goldfields : Being overlooked because of the Paddington history by Pancon. We were surprised by the upside potential seen on the visit (ahead of Diggers) with the old Padd I & II pits to be used as tailings storage (20 years at ~3.5mtpa).
  • Independence Group : Remains a favourite, despite its share price collapse to under A$3/share. Long-Victor and Tropicana could continue as low cost operations until the “cows come home”.
  • Written by: Keith Goode
  • Thursday, 11 September 2008

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