Member Info for relephant

Thanks Granto - was a pleasure interacting with you, Colin and others on this one both on the BB and e-mail and Skype. Am very well thanks and trust you are too. If I too hadn’t liked Bernard (who I originally met at the Merelani mine in Tanzania a decade ago when was he still working as a geologist) I wouldn’t have invested so much. I recall you and Big Chef met him at an investor presentation. As you know I spoke with and wrote to him occasionally over the years. However I have learned a valuable lesson not to put too much into more speculative companies and to put more effort into thinking about possible negatives as well as possible positives to minimize confirmatory bias. Taking a punt was fine and it would have been great if this had paid off - but putting so much in probably not the wisest! With the benefit of hindsight there were a few flags in hindsight I perhaps could have taken on board more. As you say a lot of problems in Tanzania were outwith the company’s control stuffing up what initially had been a very positive and profitable start in Tanzania. Sadly despite Bernard’s geological expertise they just don’t seem (at least so far) to have been able to produce the quality sapphires needed for profitability in Australia despite doing very well to reduce mining costs. However who knows they may get lucky with future mining should the mine reopen. Marketing clearly has been challenging. I don’t think I am being too hard - just trying to be honest. Was interesting and very educational getting to know about the company and its potential financial drivers. Will continue to focus on my QGARP style investing but like you will keep a watch on this one. Warm regards - let’s keep in touch

Yes that is true DtoE. However the reason for this is that TNZ/RLD was my one and only speculative small cap AIM share. As a less well-known company I posted on here (actually migrating from another BB site that was very quiet). It was through this site that I got to correspond and get to know a few posters and other shareholders, especially the late Colin Slinn (who longer-term posters will remember). I certainly learned more than I otherwise would have by coming on here and out of interest will keep a watching brief on how this pans out. The sapphire mine could have worked out had they been able to mine and sell sufficient quality stones at reasonable prices; but for some reason sadly this never happened. I am just posting how I see it, as I always have. I hope my post can be taken in that light. I was also cautioning about the need to think more about the details of how a company makes its money, and not to get too carried away by wishful thinking about stockpiles when there is no breakdown of their quality. Some may feel that because they are "down" on purchase price they can't sell, and the lower the price drifts down the more that will be the case. My and Scandic's point was that may not necessarily be the case. If you feel you have made a mistake you may be better off to cut losses (however painful) and deploy capital elsewhere. I am certainly better off having sold out than I would have been had I held on for the reasons given. FYI I currently own 27 shares, but for much of time I held RLD/TNZ I only had two UK larger cap listed shares (with most of my shares listed on other exchanges). The bulk (about two thirds) of my portfolio is listed on US markets (although some are ADR's in Chinese or S.American companies). I also have one Australian share and 2 Canadian. All my other shares are very different in nature to RLD, and follow a GARP inspired fundamental value investing approach. TNZ/RLD was really a one-off for me. If things had worked out, it could have been very profitable (as TNZ was in the early days in Tanzania). Despite my current views and loss of faith in current BOD (borne out of what has happened or not-happened) I would be genuinely happy for others still invested (and especially Quinny) if I am wrong on this, and the company can somehow return to profitability and ultimately do well. I have just tried to call it as I see it, rather than how I would like it to be. In my view any longer term recovery in sp is not going to come on the back of any spin or discussions on BB's; but on a change in fundamentals that demonstrate profitability and free cash flow have been or really can finally be achieved. Ultimately share prices reflect earnings. GLA

I'm with Scandic on this one. It is dangerous to be anchored to your buying price. Fair enough to hold on if you have good evidence to support a view that the market has got pricing wrong, and there will be a re-rate upwards. However, in this case we have a BoD that lied about almost achieving profitability, almost zero quality sales, a departing CEO, silence from BOD, almost no cash and a mothballed mine. The same BOD over the years also made some terrible capital allocation decisions. RLD have not sold any sapphires for a decent price (barring a very very few from the website). Why? The bulk of production has sold for less than it cost to dig it out of the ground; and sales of high quality stones are clearly key to profitability. Total number of cts in the ground, mined or in stockpiles are irrelevant - High quality cts are what really matter. Ignoring possible liquidation value of assets, the value of a company (and its sp) should ultimately reflect the returns investors can get out over time discounted to present value. Ultimately a sp reflects EPS x some sentiment multiple (PE). If RLD is perpetually loss-making, how can the sp rise and shareholders get anything out? Shareholders then face repeated highly dilutive placings and possibly even insolvency and losing everything. If RLD has mined a reasonable amount of quality stones what has happened to them? Why in all this time, has there not been one parcel of quality stones sold for a decent price? and Why so few stones on website? Why have shareholders not been informed of quality profile being mined? This mine failed before under Australis. Did RLD buy a lemon? In hindsight I was foolish for optimistically over-weighting positive news and spin, and making the mistake of putting too much into a speculative share. I also trusted and liked Bernard Olivier. In hindsight, I should have put in much less, and reacted sooner and given more weight to the red flags, negative developments and declining fundamentals over the years. For me TNZ/RLD was a costly mistake (my one speculative share) although I learned a lot. Am happy I got out selling 60% at 1.366p and remaining 40% later for 0.484p. The current bid price of 0.2p represents a just over 80% decline on my avg sale price of 1.013p. Just to get back to my selling price now would require a 400+% increase in sp. Opportunity costs must also be considered. Fortunately I have made (unrealised) gains from re-investing RLD sale proceeds in better quality growth companies. Offsetting RLD losses against other capital gains has effectively generated additional returns. The past is history - For me what matters is how best to deploy one�s capital going forward, whilst minimising risk of losing it. I will be happy to be proved wrong and very pleased for Gorilla, Quinny and others still holding to do well should a big re-rate upwards occur; but what fundamentals could drive this and what are the chances these happen?

Incorrect - While originally South African Bernard had emigrated to Australia some time ago and lived in Perth,

No amount of spin will turn things around unless they can manage to a) mine and b) sell enough quality stones at a decent price. 325cts of cut at an average price of only $55 per ct is not going to move the dial. If that is the best they can do after all this time there is a major problem. The loss of Bernard Olivier and these poor sales results don't inspire confidence. I wonder what the story is with BO is.

Low quality corundum has never sold for much and is not gem quality. You have spent money digging it out of the ground and so you might as well get something for it even if it is not a lot.

Gorilla - that would depend upon the extent of interest for ethical sapphires in the market.

While much of often quite dark Australian sapphire is at the low end of the market the very best Aussie material can be of excellent quality and historically this has often been passed off fraudulently as coming from other prestigious sources. Some of the photos posted of the larger stones from the mine look very nice. All depends on what amount of what quality the mine has produced. Hopefully for shareholders the company has amassed a decent stock of cut and polished stock and can sell it for decent prices. Much will be revealed by the next operational update.

.. and the problem with that is then much of the production simply becomes what Warren Buffett would term a commodity product with competition pushing down prices and importantly margins. If there had been a clear take up of ethically produced sapphires by the market then that could have provided a bit of an economic moat helping push up prices and margins and building a brand. Perhaps it is a bit like chicken - most people buy on price rather than pay more for birds raised in better living conditions (the ethical choice).

Yes oufc clearly it has been very much harder for the company to sell Capricorn Sapphires than the rarer Tanzanite. Madagascar clearly hasn’t helped. Also presumably proving challenging to create and build demand for ethically produced Sapphires.

Agree key to possible profitability/viability of the company will be the sapphire sales. As discussed, in particular this will depend on 1) how much of production has been of high quality (and based on other gem mines this will only be a small component of production) and 2) what this can be sold for cut and polished. Management have done a very good job of cutting the costs of production per ct; but just selling medium to low quality has not been enough to turn a profit (and cover not just operating, but also the additional corporate costs). As indicated previously there have been no significant sales of cut and polished higher quality material reported for decent prices. Why? Let's hope for those still in here, that the promised sales in December (which were to include cut and polished) were successful and indicate a return to profitability, or at least provide an indication this could be possible over the next year. If that happens, the sp could turn positively. The company had been indicating they were expecting to become profitable, and directors are invested heavily themselves (normally a positive sign). Thus maybe this will be possible (but if so, this raises the question why wait so long to sell quality cut and polished ?). Value of plant will depend upon whether a buyer could be found. It stood idle for years after Australis went under (previous company that failed at Capricorn mine). Liquidation value may therefore be very limited if there are no buyers. One estimate of Tangible book value is 0.518p per share, suggesting a current slight undervaluation by the market; but if using Ben Graham's conservative Net Current Asset Value (a conservative liquidation value that excludes long term assets) the share would only be valued at 0.03p. No detailed information has been provided on other resources (lithium and gold) to possibly exploit. Maybe there is some good news on this front to come. However, until this happens, perhaps it would be wisest to treated this for now as positive spin at a time the company was releasing bad news. Presume this would require capital to develop (which the company doesn't currently have much of). Longer term shareholders will recall the disastrous and costly Tsavorite aquisition, and the talk about potential of large flake Graphite (by-product of mining Tanzanite when in Tanzania). Unfortunately neither produced any significant additional revenue (although the latter might in part have been due to Tanzanian authorities being greedy and making it unviable for anyone to invest in developing and marketing the Graphite resource). Fingers crossed and hoping for positive quality sales news for those still invested. Also if the company wants to try to build investor trust, it is going to have to start providing shareholders/potential investors with more and better information. Good luck to all but beware Confirmation Bias.

If a large proportion of the unsold material is indeed now high-quality cut and polished (your alternative hypothesis) then why didn't the company sell some of this to boost turnover and cash flow (even if it didn’t get the best prices as it was trying to build sales channels)? Why are inventory levels then not higher on the accounts? If the company knew it had mined a huge amount of high quality high value material, is this not also the sort of information that should have been released to the market? (otherwise those on the inside presumably knowing this and who participated in placings at depressed low prices would have had a big advantage over the rest of shareholders). DtE suspects that the 1.1 million cts not sold “are in fact the highest quality stones that have been produced to date, and are being held as an asset and will be sold as and when to keep us ticking over. The company hasn’t done this previously – why wait so long and see the sp tank and have to have dilutive placings instead? For reasons given I think it highly unlikely that 16.8% of production is of high quality. If it was surely the company would be seriously profitable by now? As investors we need to protect ourselves from ourselves and be wary of confirmatory biases – interpreting all information in the way we would like it to be. Ultimately if the ground is not producing sufficient saleable material at an economic rate, then how much material is being treated is irrelevant. To date medium/high material has only generated turnover of $1.5m from around 0.6m cts sold (average of only $2.51/ct). The problem is that shareholders have not been provided with sufficient information to assess the quality of mine production. News of promised sale (including cut and polished material) later this month should provide some clues as to what sort of hand the company is playing with. Sales of higher quality cut and polished could be key to future profitability and a sp recovery here.

I recall from Gemfields past results, that a significant amount of its ruby and emerald production remained unsold and only a tiny amount of production was of the highest quality that fetched the premium prices. One year 82% and 54% of Gemfields' ruby and emerald turnover came from sales of high quality stones that made up only 1.26% and 1.76% of total cts mined (2.71% and 3.31% of cts sold). If RLD is similar to Gemfields and say around 1.5% of production was high quality this would mean approximately 100,000 cts of high quality. If so, and decent prices can be got for this, this could still generate very significant turnover. However, by way of comparison RLD’s unsold material makes up 16.8% of Capricorn production to date. Are you suggesting RLD’s high quality production is approximately 10x higher than the %’s Gemfields’ achieved (especially given the very small number of quality stones put on the RLD sales website, lack of reported quality sales, and fact mine also failed under previous Australis management). Gemfields didn’t sell all of its production either. For example, in one year only 53.2% of emeralds and 47.7% of rubies mined were sold. By comparison the 83.2% sold by RLD to date is high. Seems reasonable to expect that a proportion of production will remain unsold.

You are correct DtE - my suggestion most of the unsold are probably of low quality has to be a guess given the lack of information from the company. However, it was a guess based on the balance of probabilities and some other observations. Granted, some of the stockpiled material will be higher quality treated, cut and polished (as RLD has promised some sales of cut material later this month). However as indicated, we don’t yet know how much is quality or what it can be sold for. If so much quality material has been produced to date, why have so few cut and polished stones been for sale on the website? Why has there not been a report of a single sale of a high quality cut and polished stone (or parcel of stones) for a decent price(s) in over two years? Why is inventory not higher on accounts? The highest average price achieved so far is only $14.30/ct with an average medium/high price of only $2.51/ct. Where is the evidence that the mine is producing significant quantities of high value high quality material? We have seen some lovely photos of occasional large stones that have been dug up, but once again no news of any sales of this material. If there was lots of high quality stones stockpiled why would you not have tried to sell some to provide working capital, to move closer to profitability and limit the extent of sp crash, and to reduce the need for dilutive placings (that raised little capital) and were so damaging to existing shareholders. I get holding some quality material back, in the hope of getting higher prices later; but holding back all of it when the company is burning through its capital reserves and getting into financial distress and having to have dilutive placings??? That doesn’t make sense to me if the mine has been producing sufficient quantities of quality material (and assuming the board was managing the company with ordinary shareholders’ interests paramount).

Yes that would be the case IF the company does have significant stocks of quality treated, cut and polished AND can finally start selling enough of this for a decent price. All depends on 1) how much of production is actually top quality and 2) degree to which company can successfully build up ethical sales channels prepared to pay a reasonable price for quality. With rest of sales continuing to cover much of cost of mining this could herald a return to profitability. Will be interesting to see how promised December sales go.

Hi Quindell, Was in room earlier and your were listed as in but obviously away from computer. Have logged back in again but see you have left.

Thanks twozuluzulu - Good luck to you too.

Come back into room but see you are not there.

Hi - just joined

Like Granto - I too out of interest will keep an eye on how this develops. Once again good luck to all .