Going cheap: gold worth $170 million up for grabs

If you go to the bank with a bank cheque you might have to wait three days for the cash. If, however, you go to the Perth Mint with your gold, you can cash it that afternoon.

If you go to the bank with a bank cheque you might have to wait three days for the cash. If, however, you go to the Perth Mint with your gold, you can cash it that afternoon.

How would you feel collecting $170 million this afternoon? Most people would be pretty happy. The chief executive of Rand Mining and Tribune Resources, though, would rather keep his bullion at the Perth Mint.

It is likely to be the largest private holding of gold in the southern hemisphere, outside of the central banks that is. And it's growing. Even in the past six months, Rand and Tribune's inventory has risen from $137 million to $170 million as at December.

Rand and Tribune are indeed the nation's quiet achievers. These two are ostensibly the best value gold stocks in Australia. They are a screaming buy on every metric. Low debt, high profits, locked-in gold production and exploration potential. Either no broker knows anything about them, or they don't want to know. Why?

Why is managing director Anthony Billis not singing from the rooftops?

At $85 million, the combined market value of Tribune ($66 million) and Rand ($19 million) equates to half their current gold holding. Yet the two earned $16 million net profit - not to mention they increased their gold inventory by roughly 17,000 ounces. At present gold prices, that is an additional $25.5 million pre-tax for the half-year alone.

It looks ludicrously cheap. And yet Billis said on Sunday that the market had it right. "The market is the best barometer of value," he said.

This appears to be modesty in the extreme. Right now, the two companies are trading on a historic price-earnings ratio in the vicinity of two times earnings.

This bashfulness extends to the statutory disclosures. For instance, in striving to find the most recent profit figure for Tribune Mining - and bearing in mind that Tribune owns 44 per cent of Rand and Rand owns 23 per cent of Tribune, so Tribune consolidates the Rand profits - you have to wade through three pages of project data before stumbling across a two-line mention of the $16 million net profit after tax which the company notched up for the latest half year (up 1400 per cent).

If Billis had booked this gold as cash, his balance sheet would have a net asset backing about $80 million higher than is stated. Instead, as inventory, it is held at cost. So Rand and Tribune appear, prima facie, to hold only half the gold they actually do.

Together, the two are 49 per cent partners in the East Kundana Joint Venture (EKJV) with Barrick Gold, the second largest gold company in the world, holding the other 51 per cent. This is a mine which produces gold at 12 grams a tonne. Per ounce, it is one of the most profitable goldmines in Australia.

Further, a perusal of an ASX announcement from September last year would suggest the EKJV may soon enjoy another resource upgrade.

"The drilling has increased the known economic mineralisation down dip below the currently optimised pit by 300 metres and has increased the strike length to greater than 600 metres. The drilling has also identified that the K2K structure can also host a considerable quantity of gold."

This is a quote from Barrick Gold. In his typically self-effacing way, Billis did not highlight this potential.

In a story last month in The West Australian about ASX gold producers with market capitalisations below $500 million, Rand and Tribune did not rate a mention.

Northern Star made $28.5 million with a market cap of $449 million and produced 42,000 ounces of gold, yet Rand and Tribune produced 55,000 ounces and could have delivered a profit in excess of $35 million after tax, had they sold all the gold they produced and not just the 36,000 ounces (to realise $56 million in total sales).

At the other end of the spectrum - which included Tanami, Saracen, Norton Gold Fields, Apex, Ramelius and Navigator - was Focus Minerals with its 90,000 ounces, a loss of $10 million and market cap of $176 million.

Had Billis not been so shy in his promotions, Rand and Tribune might have had a larger combined market value of $85 million, more in line with their intrinsic value.

Might there be another explanation? There are all kinds of mysterious shareholdings held offshore, for one. In the sharemarket in general, the increase in offshore transactions is a nightmare for regulators and investors. Rand and Tribune prove this point.

Foraging through the ASX announcements you will find this disclosure: "Rand has been granted an option to acquire all of the issued share capital in Iron Resources Ltd, a wholly-owned subsidiary of Resource Capital Ltd from Resource Capital.

"IRL is the registered holder of a mineral exploration licence over a 600k area in Northern-Central Liberia."

When asked who was behind this opportunity, Billis said: "I can't comment on that."

The reason the identity of Resource Capital may be of interest to shareholders is that this deal, if it goes ahead, has the potential to dilute them almost out of existence.

To be more specific, if Rand agrees to acquire this iron ore exploration play in Liberia from Resource Capital, then the number of shares on issue will increase dramatically.

Although the option is structured in stages, it may ultimately deliver 86 per cent of Rand to this mysterious Resource Capital - not including a further 288 million options.

On the other side of this deal, all other shareholders in Rand go from owning 100 per cent down to 14 per cent while Tribune shareholders go from 44 per cent of Rand to 5 per cent.

It would be a rout.

And as such, it begs the question, who is behind Resource Capital? Billis is a director. However, when asked on Sunday if he was a shareholder he said, "No". When asked who the shareholders were, he said, "I can't disclose that".

When asked whether any associates were shareholders, he said, "I can't comment on that".

Whoever it is, if this deal were to go through, they would be getting a lot of gold. And they will have the ability to keep producing a lot more gold from the EKJV.

The fact the share prices of Tribune and Rand are so depressed compared with their peer group only helps this mysterious Resource Capital and its elusive shareholders. You see, there is $40 million worth of gold in Rand, 12 million Tribune shares and a capacity to earn up to $10 million a year from the goldmine near Kalgoorlie.

The vast bulk of that - 86 per cent - could go to the enigmatic Resource Capital, owner of the Liberia exploration play, and be domiciled in none other than the Seychelles - a terrific holiday destination.

The company which owns the lease in Liberia, Iron Resources, is domiciled in Ghana, where Tribune, incidentally, owns a lease directly to the south of the Perseus Mining goldmine.

Meanwhile, Rand is spending millions of dollars on the exploration in Liberia although it as yet only holds an option to buy the director-related company.

On the face of it, the directors appear to only own just 63,561 Tribune shares directly: Otakar Demis has 50,000, Billis 13,561 and Gordon Sklenka nil.

Working down the share registers, however, we see a number of major shareholders such as Resource Capital, Transglobal and Yarri Mining for which there is no shareholder information. Who are they?

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