AN OBJECTIVE ANALYSIS!!!
Beatle you are “too emotionally attached to your RED shares”.
I agree that I continually “harp on” about how under-valued I consider RED share price is. I have decided to undertake a very objective analysis of RED share price, which considers the current state of play with the commissioning at Siana. We know that first gold was poured on Feb 3 2012. We can assume that:
1. Commissioning continues with gradual ramp up in production over the coming weeks/months towards the end of financial year, and possibly way beyond that into the next financial year;
2. Siana is probably being affected somewhat by the tail end of the wet season at present, with it possibly lasting another month or so (ie end of March).
I have assumed that those factors combined will impact negatively on production, grade of ROM ore into the plant, and gold recovery rate in the coming months. This will therefore result on a discount to ideal model gold production and Siana profitability compared to the feasibility study model.
The following summary assumes:
1. Gradual increase in plant productivity (or plant utilisation), gradual pickup in gold and silver grades in ROM ore and metal recovery factors, towards but NOT attaining feasibility study ideals in the following 18 month analysis;
2. Current gold price and exchange rate;
3. No outside influences eg further Eurozone destabilisation, USA quantitative easing stance etc.
OF COURSE I can be WRONG with any of my assumptions and expectations for ramp up, but I have used a lot of discount factors in the analysis to cover for unseen circumstances.
Summary of Analysis
Gold (Au)/silver (Ag) production (Ounces)
Feb 1,850 Au, 6,010 Ag
Feb-June 2012 15,540 Au, 53,950 Ag
2012/2013 FY 54,260 Au, 136,000 Ag
Net Profit – I assume an overall operating cost of US$550/oz for initial production:
Feb-June 2012 Net profit of A$18.2 million
2012/2013 Net profit of A$62.1 million
Annualised PE
Feb-June 2012 14.8
2012/2013 4.3
If we ASSUME the long term PE is 8, then that FORCES RED share price towards a price of:
Feb-June 2012 production $2.73
2012/2013 production $3.88
IF RED achieves better than those heavily discounted production figures THEN that should FORCE the RED share price higher than $3.88!!!
IF you IGNORE that analysis then you are not considering the fact that RED remains highly under-valued compared to its peer gold producing group. And yes of course there WILL be uncertainties associated with both that analysis and the influences of outside factors, those contribute to why ALL shares suffer pullbacks and short term corrections. But what I believe is most important, for even those trading RED is that over the longer term the share price is more likely to go UP than down! From a chartist/traders perspective, and if you are going “long” on a stock trade its better to bias your chances of the share price to go up than to go down. Based on this fundamental reasoning RED should continue to trend up, thus it is one of the better reasons to trade RED than a stock that has nothing going for it to outperform the market.
BUT in my mind RED is now a good investment gold stock, at least until it moves much closer to its underlying fundamental value, rather than a short term trade where you can lose much value that is yet to be derived with its share price if you interpret the ups and downs wrong!
Be aware that RED is primarily an insto stock, more than 60% of the shares are held in insto’s. And with the consolidation It has been prepared now for the larger investor market:
1. It is NOT a penny dreadful in the eyes of the larger North American investment funds, and it has an undervalued but still significant market cap approaching $300 million;
2. RED is likely to be included in the top 100 ASX listed stocks based on liquidity, profitability and growth in market cap in the next 6 months or so, that in itself will force more general funds groups to invest in RED;
3. Marketing has been very limited in the recent months due to getting the plant up and running, once marketing begins in earnest then RED should be more widely considered than presently;
4. The larger investment community looks at profitability and growth, as determined by EPS and PE values, and valuations, rather than other considerations such as pure technical analysis;
5. RED policy is to provide dividends (that funds group seek) – even if you don’t personally seek a dividend its policy should be positive for capital appreciation due to dividends to bigger funds groups.
In conclusion, IF RED were to announce that its gold production for Feb were around the estimated 1,850 ozs, then its likely production path should follow a route somewhat to what I ‘m forecasting, and you can assume a short term share price movement towards $2.73 and beyond that towards $3.88. IF RED were to exceed that Feb target of 1,850 ozs gold THEN those short and medium term price targets are probably very conservative! Of course there are likely to be bumps along the way, but share prices REALLY trade up in a straight line.
“too emotionally attached to your RED shares”? Nah, I don’t think so!
Beatle you are “too emotionally attached to your RED shares”.
I agree that I continually “harp on” about how under-valued I consider RED share price is. I have decided to undertake a very objective analysis of RED share price, which considers the current state of play with the commissioning at Siana. We know that first gold was poured on Feb 3 2012. We can assume that:
1. Commissioning continues with gradual ramp up in production over the coming weeks/months towards the end of financial year, and possibly way beyond that into the next financial year;
2. Siana is probably being affected somewhat by the tail end of the wet season at present, with it possibly lasting another month or so (ie end of March).
I have assumed that those factors combined will impact negatively on production, grade of ROM ore into the plant, and gold recovery rate in the coming months. This will therefore result on a discount to ideal model gold production and Siana profitability compared to the feasibility study model.
The following summary assumes:
1. Gradual increase in plant productivity (or plant utilisation), gradual pickup in gold and silver grades in ROM ore and metal recovery factors, towards but NOT attaining feasibility study ideals in the following 18 month analysis;
2. Current gold price and exchange rate;
3. No outside influences eg further Eurozone destabilisation, USA quantitative easing stance etc.
OF COURSE I can be WRONG with any of my assumptions and expectations for ramp up, but I have used a lot of discount factors in the analysis to cover for unseen circumstances.
Summary of Analysis
Gold (Au)/silver (Ag) production (Ounces)
Feb 1,850 Au, 6,010 Ag
Feb-June 2012 15,540 Au, 53,950 Ag
2012/2013 FY 54,260 Au, 136,000 Ag
Net Profit – I assume an overall operating cost of US$550/oz for initial production:
Feb-June 2012 Net profit of A$18.2 million
2012/2013 Net profit of A$62.1 million
Annualised PE
Feb-June 2012 14.8
2012/2013 4.3
If we ASSUME the long term PE is 8, then that FORCES RED share price towards a price of:
Feb-June 2012 production $2.73
2012/2013 production $3.88
IF RED achieves better than those heavily discounted production figures THEN that should FORCE the RED share price higher than $3.88!!!
IF you IGNORE that analysis then you are not considering the fact that RED remains highly under-valued compared to its peer gold producing group. And yes of course there WILL be uncertainties associated with both that analysis and the influences of outside factors, those contribute to why ALL shares suffer pullbacks and short term corrections. But what I believe is most important, for even those trading RED is that over the longer term the share price is more likely to go UP than down! From a chartist/traders perspective, and if you are going “long” on a stock trade its better to bias your chances of the share price to go up than to go down. Based on this fundamental reasoning RED should continue to trend up, thus it is one of the better reasons to trade RED than a stock that has nothing going for it to outperform the market.
BUT in my mind RED is now a good investment gold stock, at least until it moves much closer to its underlying fundamental value, rather than a short term trade where you can lose much value that is yet to be derived with its share price if you interpret the ups and downs wrong!
Be aware that RED is primarily an insto stock, more than 60% of the shares are held in insto’s. And with the consolidation It has been prepared now for the larger investor market:
1. It is NOT a penny dreadful in the eyes of the larger North American investment funds, and it has an undervalued but still significant market cap approaching $300 million;
2. RED is likely to be included in the top 100 ASX listed stocks based on liquidity, profitability and growth in market cap in the next 6 months or so, that in itself will force more general funds groups to invest in RED;
3. Marketing has been very limited in the recent months due to getting the plant up and running, once marketing begins in earnest then RED should be more widely considered than presently;
4. The larger investment community looks at profitability and growth, as determined by EPS and PE values, and valuations, rather than other considerations such as pure technical analysis;
5. RED policy is to provide dividends (that funds group seek) – even if you don’t personally seek a dividend its policy should be positive for capital appreciation due to dividends to bigger funds groups.
In conclusion, IF RED were to announce that its gold production for Feb were around the estimated 1,850 ozs, then its likely production path should follow a route somewhat to what I ‘m forecasting, and you can assume a short term share price movement towards $2.73 and beyond that towards $3.88. IF RED were to exceed that Feb target of 1,850 ozs gold THEN those short and medium term price targets are probably very conservative! Of course there are likely to be bumps along the way, but share prices REALLY trade up in a straight line.
“too emotionally attached to your RED shares”? Nah, I don’t think so!
