Musings on upcoming Q3 Financials, and a potential offer
The following calculations are based on information presented at the October 8, 2019
Annual General Meeting and other assumptions based on historical average expenses mentioned in Core Gold financial statements.
The numbers are a rough estimate only.
During the question and answer session of the October 8, 2019 Annual General Meeting,
I asked Mark Bailey about the production levels and the company’s ability to meet its
financial obligations.
Based on the Q2 cash balance of $297,000 and the fact that the company has not done
any financing, is it safe to assume the company is producing sufficient cash flow?
Mark Bailey and CFO Sam Wong both participated in the answer. The following information
was provided.
Kuscan Minerals is providing the company with weekly updates on production and
making good strides at managing the company’s operating costs. This is the first time
that the company has been able to keep track of their costs and production metrics on
a weekly basis.
Weekly production was stated as averaging 360 – 370 ounces.
I then asked if it was safe to assume, with gold prices hovering in the $1500 / oz range,
that the company was at least breaking even on production?
Mark Bailey and Sam Wong both stated that the company’s finances were currently “stable”.
Based on 360 – 370 ounces per week from production, with 13 weeks of production in
the third quarter, would translate to approximately 4550 oz in Q3 (using a conservative
base of 350 oz per week)
The average price of gold appears to have been roughly US $1475 during Q3 2019.
The above assumptions would result in 4550 X $1475 = US $6,711,250 in potential
revenue.
Q2 2019 financial statements were dramatically skewed on the costs due to the
additional legal and professional fees expenses incurred by the failed attempt of
pushing through the Titan Minerals / Core Gold Plan of Arrangement, so I used
the full year 2018 expenses.
Using the Year End 2018 financial statement and dividing the total year expenses by 4 to
arrive at an average cost per quarter per each line item:
Cost of sales $22,842,000 / 21,748 oz produced in 2018 = $1050.30 / oz
Depletion and Depreciation $3,191,000 / 21,748 oz = $146.73 / oz
General and Admin $1,913,000 / 4 = $478,250
Insurance $38,000 / 4 = $9,500
Salaries and Wages $1,240,000 / 4 = $310,000
Professional Fees $1,343,000 / 4 = $335,750
*Finance Expenses $2,075,000 / 4 = $518,000 (Q1 2019 $311,000 , Q2 2019 $172,000)
Average quarter expense for 2018 $1,651,500
*Note that finance (interest) expense has reduced substantially in each of the first 2 quarters of 2019 from the average 2018 quarterly finance expenses.
Estimated Q3 2019 production: 350 oz/week X 13 weeks = 4550 oz
4550 oz X $1475 / oz average price of gold $6,711,250
Cost of Sales 4550 X $1050.30 $4,778,865
Depletion & Depreciation 4550 X $146.73 $667,621
Profit from Operations $1,264,764
General and Admin $1,913,000 / 4 $478,250
Insurance $38,000 / 4 $9,500
Salaries and Wages $1,240,000 / 4 $310,000
Professional Fees $1,343,000 / 4 $335,750
Finance Expense (Assuming Q2 2019) $172,000
Expenses for Q3 2019 $1,305,500
Net Loss $1,264,764 - $1,305,500 (-$40,736)
Considering that depletion and depreciation are non-cash items:
$667,621 - $40,736 = $626,885
Based on the above calculations, the company may have had $626,885 in cash
left over after all estimated costs are taken into account.
Add on the Q2 cash balance at the end of June 30, 2019 of $297,000, the company
would have had approximately:
US$923,885 of surplus cash to work with, if the production figures provided to
shareholders at the AGM were accurate and quarterly expenses remained
relatively equivalent to the overall averages of 2018.
Knowing that actual cost per ounce decreases for each incremental ounce produced
due to all of the fixed costs of production, the company could actually show a small
net profit for Q3.
Also note that concession fees were paid for in Q2, so not sure how this affects the
average quarterly expenses used in the above calculations.
As well, the company has stated in the past that they are finding new veins during
open pit mining operations, so depletion amounts are probably negligible as previously
unknown ounces of resources are being mined. Once further exploration is done on the
Dynasty Goldfields Project, it is quite likely that new resource ounces will be added to the
asset base.
With current gold prices, the company does appear to be stable, and could actually be
slowly reducing the overall debt levels without any further financing requirements.
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Core Gold has recently stated that there are a number of potential options that may
be presented to the company as a result of the current strategic review process.
As an example …. the company could just go with the option of an investment with
an equity stake for say US$10 – US$15 million in cash from a potential suitor.
With a USD/CDN exchange rate of approximately $1.33 :
C$13,330,000 - C$19,950.000 at a share price of C$0.30 would result in 43,333,333 to 66,500,000 shares being issued to a potential investor.
With current O/S shares at 166,876,328, an equity investment by an interested party
for US$10 – US$15 million would result in an outstanding share total of between
210,209,661 and 233,376,328.shares.
Under this kind of scenario it would result in an equity stake of between 20% - 28.5 %
in Core Gold.
Now, if an offer came in at a higher price per share, as in Zhaojin Mining’s original
$0.45 per share financing as part of their offer of partnership back in March 2019,
then the dilution would be lower, as would the equity stake of a potential suitor
company.
C$13,330,000 - C$19,950.000 at a share price of C$0.45 would result in 29,622,222
to 44,333,333 shares being issued to a potential investor resulting in O/S shares of
196,498,550 to 211,209,661.
Resulting in an equity stake of between 15% - 21% for a potential suitor company.
This type of option would be far more acceptable dilution than Titan Mineral’s takeover
bid which would see +700 million shares outstanding in that proposal with little to no
cash to use for exploration and development, and Canadians would see the listing of
our company removed from the TSXV.
All just my opinion.
DO NOT TENDER TO THE TITAN MINERALS OFFER
GLTA