By JULIE WALKER

DISPEL the current gloom: independent thought is that there is still value in selected SA gold stocks.

In a matter of months, the focus of evaluating gold shares has shifted from expressing the market capitalisation in terms of dollars per ounce to one of lowest–cost producer. Needless to mention, many of SA's mines are among the world's most expensive producers.

Yet both valuation methods are vulnerable to interpretation: analysts and investors should be asking themselves what kind of ounce of gold? Is it proven, probable, possible, indicated, Witwatersrand, greenstone, Kalimantan, Kalgoorlie, an ounce of reserve or a total resource?

And what constitutes cost of production - does it include capital expenditure, ancillary costs, financing costs, accounting differences on amortisation? Gengold managing director Tom Dale touched on the issue in last week's quarterly presentation: he pointed out that companies whose mines have "cash" production costs of $200/oz do not always make money. Mines which boast production costs of $150/oz should also be careful: they might be one of the factors pushing down the price of gold if the profit margin is seen as too generous.

RMB Resources, which prepared the competent person's report in listing documents for Randgold Resources in adherence with the London Stock Exchange's stringent rules, says the best way of presenting information to investors is to include a pay–limit/pay–value graph.

"Once you have applied the pay limit, all ounces of gold in the ground anywhere in the world should be equal," says RMB Resources' Andy Clay.

The pay limit or cut–off grade is easily arrived at by dividing the cost of production by the gold revenue. A mine's ore reserve can be represented graphically and looks like a camel's hump: the bulk of the tonnage is of medium grade in grams a ton.