LAKE SHORE GOLD CORP 6.25 PCT DEBS T.LSG.DB

RE:Please help explain!

[Allthewaydown]

Revenue $61.4 million, minus direct cost ($29.5) and depletion/depreciation ($17.5) = $14.4 gross income. Admin expenses $4.2, FOREX losses $0.6, interest on debt $5.0, leaves $4.7 million net.

Cash position always does better than net income. The $17.5 million depletion/depreciation means (in simplistic terms) that $17.5 million of assets (gold and equipment) have been converted into cash. Ultimately you have to replace the gold ounces and the equipment or the operation will cease. In the meantime, though, the company is holding onto $4.7 profit + $17.5 depletion allowance = $22.2 extra cash, with the understanding that the $17.5 has to be rolled back in to keep the operation viable. You can "borrow against it" if you need to in a downturn.

At a market cap of $380M, an annualized profit of $20M gives us a P/E of 18. This is respectable. In this sector it is not uncommon to see 20:1, or about a 10% upside. Consequently you could sustain about $1.00share price at current gold prices, but not much more than that. .

Highly leveraged to gold price, which is why most of us are here.  Under the current cost structure an 8% increase in gold gives about 100% increase in profit. therefore we are leveraged about 12:1 to gold price. As far as I know there are no significant hedge book liabilities that would dampen this.

Company is stable and solid at current prices, can survive a downturn, is reasonably valued, and has good leverage for gold bulls. The picture slowly gets better as the debt is paid down and operational efficiencies increase. Not a lottery play... I am not expecting any sudden discontinuous rise. Just a decent growth stock for those of us who like gold but puke at the thought of Barrick or Newmont.