INTRODUCTION

There are several reasons for the preparation of this study. Firstly, gold recently reached an 18-year low price - and we are firm believers in the wisdom of the market axiom: BUY LOW AND SELL HIGH. Secondly, all markets are cyclic in nature. Thirdly, per all traditional valuation standards employed by prudent and objective analysts, stock markets worldwide are displaying what Fed Chairman, Alan Greenspan, labeled 'IRRATIONAL EXUBERANCE." Furthermore, it is eminently important to recall that Mr. Greenspan made his now infamous observation about 3000 DOW points lower than it is today. Fourthly, whereas information on North-American and Australian gold stocks is rather scarce, the investing public's ignorance of pertinent data on South African golds is indeed encyclopedic. And finally, market history has demonstrated that South African gold stocks have usually enjoyed far greater capital appreciation than their North-American and Australian counterparts during gold bull markets.

Consequently, the prime purpose of our analysis is to identify and quantify those numerical factors which contribute to South African gold stocks stellar performance vis-à-vis their North-American and Australian brethren during bull markets.

Political Issue

We will NOT discuss any political aspect in reference to the three geographical areas - primarily because in our considered opinion it is a moot issue, best left to socio-political types who have the time to waste. Suffice it to comment that whereas 25 years ago Apartheid influences most likely played a role in assigning additional risk to the South African stocks, this is NOT the case today. Indeed - and in light of Far-Eastern economic turmoil, Middle-Eastern unrest and shenanigans in the White House - some experts consider South Africa an exemplary paragon of political stability. Therefore, the tattered and worn cliché that "South African stocks have lower market multiples because of (perceived) political instability" is pure rubbish - and really just a poor excuse to cover up overt ignorance of what the real issues are.

METHODOLOGY

This comprehensive and exhaustive study is the collective effort of Brian Hill (Okinawa, Japan), John Disney (Cape Town, South African) and Vronsky (USA).

Unless an investor is blessed with a fortune at his disposal - allowing for global diversification - he must do his due diligence to determine which gold area will provide the best value for his limited resources. Consequently, we divided our study into the three geographical regions to perform our comparative analysis.

We have painstakingly compiled the valuation factors of a representative sample of the three largest gold producing areas in the world: North-America, Australia and South Africa. Specifically, we examined 12 North-American, 10 Australian and 13 South African gold stocks. They are the largest and most known companies of the three regions -- therefore representative of each universe. Subsequently, we made a comparative analysis to identify those numerical relationships that an objective researcher should evaluate to determine the relative intrinsic value of the three domains.

OBSERVATIONS

During the last three years gold bullion continued its 18-year bear market downtrend - however, establishing an apparent bottom in late 1997. Consistent with dismal performance in the bullion markets, the North-American Gold & Silver stock index (XAU) shed about 50% of its value. And while the Johannesburg All-Gold Index fell more than 71% in the same period, many first-rate South African gold stocks plummeted even further during the last three years.

In essence gold stocks appear to have been suffering their own type "1929 CRASH." Consequently, all gold stocks are TODAY horrendously under-valued with respect to the 'IRRATIONAL EXUBERANCE" mania plaguing the "paper" markets."

We must confess that before making the study, we were inclined to believe the North-American contingent would be vying for top value position with the Australian gold stocks. Our un-substantiated predisposition was most probably forged by the relatively high level of company marketing exercised by the two areas versus the nearly non-existent marketing of the South African golds. Frankly, the results were so flabbergasting - and one-sided - we felt obliged to recheck all our figures - which may be seen in the spreadsheet at the end of this report.

The numbers below reflect the AVERAGE per company by group - individual company numbers may be seen in the spreadsheet, "Global Gold Comparative Analysis." For simplification we will use "SA," "N/A" and "Aus" to denote companies in their respective areas.

• Total Gold Reserves Per Company
  
  SA possesses nearly TWICE as much gold reserves as N/A
  SA possesses EIGHT TIMES more gold reserves per company as Aus
  
  
• Annual Gold Production per company
  
  N/A produces    1,210,000 ounces
  Aus produces    462,000 ounces
  SA produces    870,000 ounces
  
  
• Gold Reserves Per Share
  
  SA owns nearly SEVEN TIMES more gold reserves per share as N/A
  SA owns nearly FORTY-SEVEN TIMES more gold reserves/share as Aus
  
  
• Production Cost Per Ounce
  
  N/A production cost averages $417 per ounce
  Aus production cost averages $458 per ounce
  SA production cost averages $326 per ounce
  
  
• Market Price Per Ounce
  
  N/A shares reflect a market price of $138.09 per gold reserve ounce
  Aus shares reflect a market price of $172.00 per gold reserve ounce
  SA shares reflect a market price of ONLY $12.01 per reserve ounce
  
  
• Market Price Per Ounce - Expressed Differently
  
  N/A gold reserves are more than 11 TIMES more expensive than SA
  Aus reserves are more than 14 TIMES more expensive than SA
  
  
• Value of Reserves Factor Per Ounce at Different Gold Prices
  
  A cursory glance at the "K" values in far right of the spreadsheet
  shows that SA gold stocks on-balance enjoy much greater market
  price gearing (leverage) as gold prices increase.
  Therefore, SA gold stock prices will rise faster in a bull market.

CONCLUSIONS

• Gold stocks worldwide have been in a bear market for a long time
  
  
• Gold stocks indices in the three regions have ALREADY bottomed
  
  
• In the last gold bull market the XAU rose about 115%
  
  
• In the last gold bull market the Johannesburg Gold Index rose 260%. With political improvements now in place in South Africa, we expect this figure to be even greater in the forthcoming gold bull
  
  
• When an investor buys a share of a gold mining company, he is paying for the gold deposits still in the ground. Consequently, he should be concerned about how much he is paying for each un-mined ounce. The results of this study painfully demonstrate that the hapless investor in North-American and Australian gold stocks is indeed paying very dearly for each ounce of gold reserves. While the market price of a South African gold ounce deposit is ONLY $12.01, the market price of North-American gold is an exorbitant $138.09 per ounce, and an outrageous $172.00 per ounce in Australia.
  
  Now WHY would any intelligent person pay $138.09 or $172.00 for an ounce of gold deposits, when he can get the same ounce of gold reserves for only $12 and change?!
  
  
• Hypothetical investments of $100,000 each in shares of the three regions would acquire the following amount of gold reserves:
  
      581 ounces of gold for the Australian investment
      724 ounces of gold for the North-American investment
   8,244 ounces of gold for the South African investment
  
  
• North-American and Australian institutional investors will do well to consider taking positions in extremely under-valued South African gold stocks. In fact many cash-heavy North-American precious metals mining companies might even consider ACQUIRING South African golds via merger, because the cost of increasing the reserves base is much more expensive through the traditional methods of exploration and/or development.

The above results force any objective researcher to the inevitable conclusion that South African gold stocks represent far more intrinsic value than their North-American or Australian counterparts.