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Gold/Mining/Energy : GMD RESOURCE -- Ignore unavailable to you. Want to Upgrade?

To: Richnorth who wrote (431)	11/15/1997 9:13:00 PM
From: Rick Seavey	Read Replies (3) \| Respond to of 1030

First, let me say that I am a big fan of GMD and the no nonsense way that they conduct their business. When you call them, there is always someone very knowledgeable there to field your questions. You get answers, not a lot of "forward thinking hype." However, having said all this, I'd like to get your reactions to my thoughts. GMD has a tremendous amount of potential on the upside. But right now it is only potential. For this to be translated into reality and a much higher share price, some daunting tasks remain. First and probably foremost is that the price of gold has to improve dramatically. At the current price, it is barely worthwhile to mine it. Consider one analyst's estimate of $250 US per ounce cost to GMD to get the stuff out of the ground and off to market. That leaves a scant $50 US margin of profit that seems to be shrinking daily with gold in such disfavor. If I am Don Farrell, I would leave the gold where it is until something happens to reverse this trend since you can only mine it and sell it once. GMD can (and probably will) prove up a million or two more ounces than they already have but this will only add to the potential and not necessarily to the stock price until investors can see the ability to convert potential to profit. Because most investors want the biggest and quickest bang for their buck, they (perhaps unlike you and I) are unwilling to invest in potential when it is tied to the seemingly hopeless reversal in the price of gold. The diamond properties are promising from the little I know about them. But I do know that it takes many years to determine if you have a worthwhile deposit or not. I also know that it costs several hundred million dollars to set up the facilities to mine them. Even over the short term, it is very expense to take bulk samples and have them processed. By necessity, GMD will have to go slow with these properties because of the expense. The JBG and Treasure island properties have, to date, been a bust. But I am not sure to what degree GMD has exhausted their exploration potential on these properties. However, at best they are just more potential, weak at that. If gold were at $400 per ounce, I could agree with your $12 share price and even say that that was conservative. Think of what that would mean to GMD. First, it would mean a profit of $150 US per ounce rather than the barely break even amount of $40-50 currently. It should also be mentioned that taxes and interest would have to be deducted from that amount. But a $150 per ounce profit would mean that GMD could speed up their gold and diamond explorations perhaps transferring potential to realty. Another factor of which many investors lose sight is the dilution of their stock as their company has to float more and more shares to obtain exploratory funds. Assuming that the proven reserves currently being calculated for GMD is in the vicinity of 1.5 million ounces and a gold price of $400 US per ounce, GMD would have little need of floating any more shares (this assumes that they would obtain gold loans to start the mining process). A profit of $150 per ounce and a per year ounce production of, say, 50000 divided by the number of shares outstanding...well you can do the math as well as I to find the "potential" share worth. It seems to me that the "potential" reward is worth the risk which is, as I see it, quite low. Unlike most small company stocks that I look at, I can easily see a very simple and plausible scenario that could have my IRS agent grinning from ear to ear in a few years' time.