VAU - Vault Minerals

Impact of Price of Gold

Although we have had a considerable move up in POG over the past week, reaching a new record high to US$1,296 over night, the aussie exchange rate has continued to keep abreast of that movement, also with a high overnight breaching US$0.96.

The resulting impact of those factors has kept the valuation price of RED within a relatively tight range, regardless of various mixes of debt plus equity. If we assume its a standard debt facility for the final funding package (probably unlikely) then it amounts to 38 cps, and for a straight equity deal (conservatively priced at 15.5 cents) it amounts to 32.5 cps.

BUT there is one factor that provides benefit to RED - its outstanding balance of capex is priced in US$, therefore with an appreciating A$, RED will save A$ in meeting the outstanding costs to build Siana. Hopefully the financing can be bedded down in the next couple of weeks and that the exchange rate remains at these high levels, thus saving perhaps 6% of its outstanding balance in terms of the exchange rate, which could equate to around A$1.5 million on the outstanding capex requirements.

But gee its frustrating waiting for the all important financing announcement!

We are now in the last week of September, and hopefully we will see an announcement regarding funding within the next couple of weeks. In the meantime RED share trading has dried up a lot as sellers have become less reckless with dropping shares at this critical time. I personally would not take the risk to drop shares with a view to buy them back later at a lower price, as timing now is very important and I believe it must be just around the corner!

I would like some reassurance from RED management that the development remains on track as previously indicated with first gold pour in April 2011, with internal funds being used in the interim to maintain the development schedule (assumedly that remains the case!).

Am I right in thinking that prior to any announcement on funding a Trading halt will occur.. sorry for my uneducational knowledge on this..

desjosie said:

Am I right in thinking that prior to any announcement on funding a Trading halt will occur.. sorry for my uneducational knowledge on this..

Click to expand...

No need to apologise! We're all learning every day

A trading halt will occur whenever significant news is set to be released which could effect the Share Price or outlook/direction/etc of the company. In the case of funding, this is almost always preceded by a trading halt. But it's not always easy to say ahead of time - if it's a perceived minor news update or the market was informed of the information ahead of time they'll just release the information to market without a trading halt.

If I can make a slight variation of KurwaJegoMac's post re a Trading Halt:

A TH is often used for 2 reasons - 1) when management is concerned that news about a market sensitive issue or announcement is likely to become public knowledge ahead of such a release. 2) when management want to highlight a forthcoming announcement (again using the guise that they are concerned about it leaking out ahead of the announcement, whether that is likely or not - the cynic in me!).

RED's past record is that they have called for a TH when its been a very significant announcement coming regarding large placements or finance - Oct/Nov 2007 (for the first big placement of $35 million at 10 cents), and Dec 2009 (A$45 million placement at 15.5 cents plus project finance mandate to Deutsche Bank/Ashmore for US$40 million).

Here's hoping for a TH very soon....

Hi everyone, hi Beatle. Sorry i havn't yet got back to you Beatle. I did after work yesterday morning, i hit submit and lost it. I wasn't writing again. I believe that's happened to you once before, lol.

In reply to your post and in a round about way, i was interested in what you said about investors/traders wanting to off load their shares once funding had been announced, which in-tern could effect the re-rating of RED. Then you mentioned about the Melbourne based insto (which you previously stated, but forgotten by some), that wants in once funding is bedded down, which will hopefully counter act the share price with the sellers wanting out. 5% or 50 odd million shares shouldn't vanish to quickly, one would imagine. Very intruiging.

Beatle ivé noticed alot of investors have placed their bids in, between 12 and 15.5 cents, in about 1 to 1.5 million $ lots, every .05 cents. I really do believe they will miss out and wont get the chance and will be scrambling back in next week to pick up last minute shares at a very cheap price, which will only drive the sp up again. Just my point of view of course...

In regaurds to the current topic, the end of September and the possibility of a trading halt, BRING IT ON !!!

Hi Moit and all, (there's no problem with your delay in posting, we are all friends here!). At the moment with the continuing delay in announcements and action on the positive side for RED I find posting on ASF about RED being my only way to counter my pent up anticipation of future price action! Every day is a day closer to that announcement and a day closer to the first gold pour, thats how I see it! (Excuse my biased opinion, lol).

Regarding your observation of buyers for RED between 12 and 15.5 cents, I'm not sure if there are individual orders over 1 million shares at any of those levels. I have checked since you referred to it (but after close of trade so any bids may have been pulled therefore I can't see them!), but from my observations whilst there are multiple bidders at each of those levels aggregating to the numbers you refer to, most individual bidders are below 200,000 units each (except at 12 cents where there is 1 bid of 600,000 shares).

I do suggest also, that you must beware the bids and offers immediately below or above traded price as there can be all sorts of games being played by traders, including dummy orders that mysteriously come and go depending on the motivations of market players! And with the use of BOTS these days who really knows whats going on other than each individual putting in place these orders. But what I would say in RED's favour, is that the level of trading activity and overall liquidity has increased more than 10 fold nowadays (even now on days of relatively inaction) compared to some years ago when it could possibly not trade for many days, sometimes weeks! (Then Siana was not a completed feasibility study and certainly didn't have the following that it has enjoyed nowadays).

My hope is for RED management to quickly complete the outstanding issue of finance and put out an announcement to that effect, confirming that outstanding project contracts as part of construction have continued to be let, with development schedule on track as previously announced. That should be the filip for the last remaining doubters about Siana ever producing gold again to be removed. And the selling which has almost stopped will abate altogether - at the moment it seems technical chartists are trading the stock assuming it must drop to around 15.5 cents to achieve the pullback based on charts before resuming its next move through 19.5 cents.

I would also like to think that RED management decide to put in place some hedging, of US$ gold (not necessarily the A$ currency leg!), in the event that gold comes off in the following weeks - at the end of the day a hedge is only an opportunity lost, not a loss in money, if put at these high levels where gold can be easily delivered against such contracts. My feeling is that gold is now reaching a level that could be akin to the oil price at US$147/barrel a couple of years ago, and we should take advantage of that high price now. I don't believe that the A$ will get much stronger as well, thus the benefits of not putting in place currency. (Of course financial institutions may not be prepared to allow RED put in place US gold without A$ currency offsets).

Hi Beatle, in regards to what i said in yesterdays post. What i meant to say is, there were over 1 million units every half a cent between 12 and 15.5 cents. There may have been 5 to 20 people wanting to buy each million, not necessarily 1 person to 1 million units. But some where pulled at the closing bell. It just goes to show though, that there is still people out there wanting to pick RED shares up at a cheap rate. Sorry if i miss informed anyone...

It was a great night on the dow last night, hopefully a good day Monday for Australia and especially for RED. Unless of course we see a trading halt Monday, which is quite possible. Each day is nearing to that all important announcement we've all been waiting for. Very exciting times. Well I'm going to enjoy my weekend, have a good one everyone. GO RED AND GO THE TIGERS !!!

Hi Moit, and my apologies for not following your line of discussion with regard to the aggregate buys for RED which I agree with you add a great deal of support for RED. And whilst some will argue that RED has not had great price growth over the past couple of years (depending upon what time of the cycle you bought into it!) RED has completely changed as a company backed by many more shareholders, both big and small, insto/fund/retail, and of course the market cap has now got the size to seen as a serious gold company on the verge of significant gold production. Its profile now, while still being seen as a spec due to it not yet confirming the last leg of funding for Siana development, has grown considerably over the years.

In 12 months time, if we move ahead of our current frustrating period, will see RED on the ramp up to 100,000 ozs of gold production from Siana alone, and with Mapawa much more defined as to whether it will add considerably to the gold inventory. If it shapes up to the indications from drilling and trenching and geophysical information to date, we are looking at a porphyry gold project with copper credits, that is likely to be at least 100 million tonnes averaging around 1 g/t Au, equating to something like 3.2 million contained ozs gold!

And subject to the gold price not dropping below around US$1,000/ozs with that projection for Siana and Mapawa I can see RED being completely re-valued, way above the indicated ca. 38 cps that Siana promises for RED, and moving towards $1.00 per share. That is the longer term outlook I remain confident and insistent that we should be aiming for!

As you point out Moit, with the Dow up again and gold close to its record close overnight I can see RED having a bumper of a week IF it were to announce the funding package this week (but I think we may have to be patient for at least another week, unfortunately! - of course reassurance of development works remaining on track for Siana would be a good secondary announcement and comfort for us anticipating RED being in production in the first half of 2011).

Beatle and others, What a hard day today has been! A real test of staying power for all holders. Hard to fathom what sentiment change will push the SP on when it has been such a strong day generally. Just have to stay calm and focus on the fundamentals, as eventually they will prevail. AB

Hi Beatle, Anderbond an others. Anderbond it was a shock of a day. Markets were strong, but RED'S volume just wasn't there. Nobody wants to pay for it (even though at a cheap price) and the sellers certainly aren't giving there shares away. I was a little surprised, but at least we didn't loose any ground, which could have happened...

Beatle i got a little excited when you mentioned RED'S sp could be in for a true re-rating well beyond the indicated 38 cents, if Mapawa were to follow in Siana's footsteps of course. Ive had an image and set price in my head since becoming a RED shareholder, and its always been $1.00. I'm pretty sure i wouldn't get rid of RED until it was at least that, unless my circumstances changed. It wouldn't particularly bother me if it were to take 5 to 10 years to get there, cause with each little announcement, financing, first gold pour, porphyry discoveries, yearly profits etc, it's all going to add that little bit more to the sp, and eventually we will see that re-rating. Ive never sold a RED share yet, only bought more, and probably continue too as it is also my little gold mine...

Hi Moit, good to see your comments and sentiments, sounds like you are acting similar to me, RED being your own little gold mine!
With regard to the price target of $1.00: My view is that the share price to 38 cps based on Siana has been a lot of hard work, much frustration and waiting, and for me its been since they first inherited in 2001. So what do they say, the first million is the hardest? So i believe that is same for RED. I believe you won't have to wait 5 or 10 years for that movement towards $1.00 IF Mapawa continues down the path that is being indicated by the drilling and geophysical work so far. My thought is that its going to either be proven to be a biggy or not within the next 12 months, and therefore that is the time of the true value adding, if its going to happen! Thus within 12 months, IF Mapawa shows its form the way we are hoping, then we will see RED move towards $1.00, possibly beyond, and each days share price movements will not be the odd 0.5 cent increment, it will be some days of many cents movement, then we will look back on these frustrating days and say why did it have to be so hard earlier on! (Thats my view anyway!).

Come on RED, its about time to wake up...

Hi Anderbond, sorry I failed to see and therefore acknowledge your post until this morning. My sentiments are similar to yours, and its been what we've been trying to do for a long time now, to focus on the fundamentals realising that ultimately it will bear fruit.
I am very much thinking that your (hopefully informed) source who suggested that RED is waiting out an exclusivity period till the end of September with DB, is on the money, and that soon after that we should hear from RED. Since this Friday is the beginning of October maybe we won't have to wait much longer now for that confirmation, whether it will be at the end of this week or perhaps more likely at the beginning of next week! If that is the case, then we can assume that the DB/Ashmore offer is now unlikely to be the final funding means to development, and will be replaced with another offer - with the duration of the time that has lapsed from 5 August when that offer was announced to the market and now, its most likely that is the case.
It will be an exciting period ahead for RED, and I guess the other thing will be that if the gold market or general stockmarket weakens how will that impact on RED share price. I would hasten to add that in A$ terms the gold price has not really strenghtened much in past weeks due to the rising A$, so any drop in US$ gold price might be accompanied by a similar drop in A$, thus softening the impact on Australian gold companies with Australian shareholders.

Beatle,Moit and Anderbond.. Your comments and sentiments in regards to Red are very informative and infectious... I (along with you) await news from them with a feeling of good times to come. (SP) However the silence from them in regards to funding is deafening.
Beatle your comments on SP going to $1.00 puts a spring in my step. My question to be put to all, does anyone sees Red emulating Medusa and heading to the $4.00 plus mark within the 10 -11 years?
Or is that a bit fortuitist on my part..

Hi Desjosie, and thanks for the comments.

With regard to your question about RED emulating MML and moving towards $4.00 (gee some people aren't satisfied, haha!). Well unfortunately it works on market cap rather than share price (and RED has many more shares on issue compared to MML - currently 5.2 times as many.

MML I believe is a very good comparison with RED potential however, esp ahead of RED commencing production, as it has so many aspects in common, such as country of operations, operating in a similar historical mining district something like 150 kms to the south along the Philippines Fault line, geological prospectivity etc. With respect to that geological prospectivity, its at least part of the reason why MML enjoys a premium over its fundamental valuation (and similarly to other gold producing companies).

But if you look at MML market cap at present (ie simply the number of shares x share price - I will not bother looking at in the money options etc as they are not so relevant, nor worry about cash at bank - MML actually has got a stack of that too!), MML market cap = A$880 million. This compares to RED market cap at present of A$161 million. IF RED were in production, with similar gold production you could expect RED to move TOWARDS MML market cap, ie 880/161 = 5.46 times the current RED share price, ie 5.46 x 16.5 cents = 90 cents per share!!!

BUT, and its a big but!, MML has got a stack of cash in bank (around US$55 million) , it has been a VERY low cost producer at its underground gold operations even though it has only recently started to increase gold production appreciably. And it appears that MML will be able to continue those underground cheap operations going for quite a while - the reserve life is only 5 years or so, but in underground narrow veined mining its hard to categorise gold resources into reserves so how much mine life ahead is a bit of a guess really, whether its mine life is 5 years or more.
Once MML completes the cheap mining then it will be much harder to achieve (and unlikely to achieve) continuing low cost operations, but its a hard question to ask.
Importantly MML has been very well managed, has got the runs on the board and the ear to many major US insto's. Its marketing has been matched by meeting targets in production to date, so its one step ahead of RED!

By comparison, RED has yet to do the hard yards of confirming its ability to turn the feasibility study into production based on the indicated reasonably low cost, long life mine, both great pluses with Siana, but RED management has yet to prove its up to the task, as it has been a frustrating ride so far. RED must turnaround and prove it can meet timeframes and budgets promised, unlike some of the past drawn out dramas. To its advantage though, Mapawa is shaping up as a potential elephant, which makes me very confident that the future outlook for RED should be much better once its in production and can produce cheap ounces, as a means to fully evaluate Mapawa. And remember, Mapawa refers to one prospect so far, at LSY, whereas there is potential that the entire MPSA may hold other porphyry prospects, and additionally the Siana MPSA has demonstrated that it also holds considerable potential at porphyry prospects, such as Madja etc! They have not been pursued other than some geophysics and rudimentary drilling or trenching due to the priority of developing Siana open pit mine first.

I can still see RED achieving a price moving towards $1.00 within the next 12 months provided gold doesn't fall out of bed completely, but for it to go to $4.00 is probably unlikely unless Mapawa (and other porphry prospects) come up with the goods.

Hi all. Just wondered if anyone has any idea weather red have any other finance options on the board or are they still exclusively negotiating with db. Someone stated they spoke to the board a little while back and the terms with db were the hold up, but surely if they are commuted to exclusive negotiations with db why would db change the terns. Surely red are over a barrel and it's take it or leave it. The only good thing is at least the finance is definitely available.

Hi all, Beatle more great posts...i think your calling is definitely in Investor Relations!
Here's a post I made somewhere else

Based on Ann Report 2010 and yesterday's price:
Cash 5.9c
Mine 4.1c
Gold 6c, which on 849k is $AUD71 per oz
Total 16c

The $71 is not outrageous, eh? and compares with a stat i saw on replacing gold reserves of $80something. The more usual back of envelope stat. is EV/resource which for RED is $A184/oz., I don't have ready comparisons but West Africa gold explorers av. is $88/oz

The major thing from the fin. stmts is the reclassifying from Exploration and Evaluation expenditure to the category Mine Development. The company is acknowledging its move to producer status.

What i have always liked about RED balance sheet is the fact that the (negative) retained earnings is only $16m after 14 years! ..a little over $1m a year as costs of running the company to write off is very good compared with most balance sheets you see, and a testament to consistent good governance over a very long time. I like companies which carefully look after investor funds.

IMO, the SP has small downside risk (also based on instos paying 15.5 in cap raise) and yes 10c of the price is hard asset value. As we move to production Mr Market will assess SP to include both NAV and cashflow generation capacity.

Readers also need to remember in assessing value that gold mines aren't easy to find and take a long time to develop - this one has taken 14 years - any potential buyer would love to pay to eliminate the time!! Looking good.

Hi All, and good to see some other posters on the RED thread!

Andrew: Anderbond has informed us (through a 3rd party), of RED having been tied to an exclusivity to DB until end of Sept (that must end tomorrow, being 30th I HOPE!!!). I would imagine that DB doesn't have to change the terms but once the exclusivity is over then DB doesn't have RED over a barrel any more, so they lose out and I'm sure their standing in the industry will have been served a bitter pill also! The issue may have been their capacity to deliver due to credit committee requirements and inflexibility, which is a test of a banks real capacity to be in the project finance industry! So its not a smart longer term commercial play if they don't also remain flexible with the terms and conditions. Of course we outsiders will never know why RED decided to appoint an exclusive mandate with DB in the first place, I really can't fathom it since the Chairman has been involved with many other financings in recent years and should've had more experience to "trust" a bank with an exclusive mandate! I know prior to appointing DB RED had many different options, not just equity but also other pre-pay gold loan proposals etc. Maybe they have come back on the drawing board as well.

Therefore, as you correctly state, RED does have many other options, and I expect that if the exclusivity does in fact end in next days then its most likely we will see an announcement out regarding a preferred alternative soon. Thats possibly why RED was generally trading up yesterday, although as YuYu noted elsewhere, after trading up for most of the day, it took a few shares at 16 cents at the close to give the appearance that RED was still going down!

Andrew, if you read the Financial Accounts, RED refer to significant events in the past year (page 2) and it doesn't refer to DB at all, it says "A banking group was awarded the mandate to provide a senior secured debt financing package for the development of the Siana project, subject to normal due diligence and credit approval processes." That to me suggests that RED have decided to go elsewhere! (Just me reading between the lines I admit).

Mgm1a, I do hope you agree that whilst I post positive aspects of RED, in fact I think that my comments remain factual with respect to keeping readers informed and being relatively balanced? And you will be the first one to acknowledge the valuations are correct since you also model RED (albeit using a 15% discount rate I gather?). With regard to your last comparative analysis statistics I'm not able to follow your line of reasoning with the

"Cash 5.9c
Mine 4.1c
Gold 6c, which on 849k is $AUD71 per oz
Total 16c"

Can you explain it more fully please. As you may also realise, my main skill is technical, not accounting (I presume that is your forte!), thus I don't take so much from the historical costs as you have done, my line of reasoning is that most of the sunk costs do not actually mean much for future development, although I agree it does demonstrate cost control historically is a positive element. (By the way Siana has been on RED books since 2001 so its been developing for the past 9 looooonnngg years, not 14 years, most of their early exploration work relates to Australian, esp WA exploration). I have never doubted RED management in terms of being careful with their past exploration expenditures relative to peers, but more critical of some of their priorities and decisions and quoted timeframes for delivery of critical elements of the projects.

I would also like to make the following comment, that is a danger when comparing different companies for EV. I am always concerned when analysts use Inferred Resources, with no reserve information being available (as they are pre completed feasibility study). An Inferred Resource means different things to different resource practitioners, bearing in mind that whilst some use a fairly objective basis for their assessment its still dependent on continuity of far flung data points, and others are less strict, and so the estimation can be frought with errors for many different reasons. In the case of RED, the resources have been defined on an objective basis (Cube Consulting is a very good resource practitioning consultant), but more importantly have been then had the rigours of a 3D economic whittle assessment to come up with reserves (ie no included Inferred Resources in the reserves) and all other factors such as metallurgy etc to contend with.
I suggest that the best way to compare such to other companies is to compare it with companies only having reserves, applying a DCF, and that is when RED comes out as a very cheap gold explorer/developer/producer in the making! Those Inferred Resources (and in fact even other categories of resources, Indicated and Measured) may never come to anything if they are too deep or whatever, that is not the case with RED, they also have Inferreds sitting within the Reserve areas that will be subject to mining, esp in the underground section and therefore if they exist will likely come into reserve inventory during mining drillouts.

beatle
I have reduced the cash on hand and mine capital costs to date to a per share value. These 5.9+4.1 both add to 10c, which is the net equity reduced to a share value, i.e. net tangible assets.

Since the SP is 16c then the difference is the value, simplistically, of the gold in the ground.

My forte is not the finer points of resources and reserves, but it seems to me any investor can get get cash, plant and mine expenditure for cost...but to get gold seems to be ridiculously cheap at $A71 for something that is worth US1300.

The current POG is indication itself of demand and an indictment on the general state of the global economy. The reason the instos love this sort of company is that to get, say, a 1moz gold mine underway they would have to invest $A71M over a long period, send a prospector off on his way and wait and watch with all that heart ache. or.. . they could just get one off the shelf. Given also there is a long term decline in gold reserve replacement i can't see any major drop in value of gold miners for long time to come.

Hi Beatle and other RED investors, I have left a message on CJ's mobile asking if there is an expected announcement or any update on the finance package due soon. AB