RE: Quarterly Report....(Vocex1)Jim,
As you know from previous interactions, I respect your views and DD and I am delighted that your recent NG success elsewhere gives you the inclination to return here. The board posters on this thread will benefit IMO from your integrity, wide business activity perspective and chart interpretation skills.
However I had a number of thoughts which your "Quarterly Report" post prompted and on this occasion, rather than discuss them off-line, I decided to post a response to encourage and give other poster colleagues the chance to add further comments. I certainly never view this as a tit-for-tat exercise, even though I used Question/Response or Comment/Response format as the easiest manner of focusing a few thoughts......most of us are trying to understand and exchange ideas here in a spirit of co-operation and learning.
1. Questions: these two “corrections” mean more spending on equipment to bring production up to expected levels…..One is $400K,the other estimated at $4million
Response: YES
2. Your Question: So if the anticipated gross revenues for 2006 are something like 80,000 tons concentrate, assuming POLead stays here at 50c/US/Pound, won't these corrections use up almost all of the gross figure?
Response: No…..I suspect that you dropped a digit…..even if the price of Lead is $0.41 at 80,000 tons of concentrate(say 75% lead) would be of the order of $66 million (i.e. 80,000 X 2200 X 0.50 X0.75)
Note that Ivernia’s target in the 85,000 to 90,000 tons range for year 2006 was for Lead in Concentrate, not for Concentrate. Personally I prefer the more conservative 80,000 tons target that you identify, but I suggest that it should be for Lead contained. Also worth noting is the recent very significant increase in recovery performance due to a number of items both process related and Cano feed related……I suggest that even at a much lower $0.41 price per lb price for lead in year 2006 that revenues for Ivernia would exceed $70 (i.e. 80,00 X 2200 X 0.41 X 1.00)…the 1.00 relates to contained lead aspect of company guidance).
3. Your Question: Didn't we have a problem in operations with wetness, requiring product to be dried in the sun for some time, before it was saleable/shippable, earlier this year.
Response: Yes…… but I understand that forced drying tends to effect the flocculating bond and that the choice of air and sun drying does not damage the binding agents and is most probably largely related to providing a dust-free product. I acknowledge that you have said “Not having a mining background” and perhaps my own partial background in mining and mineral processing may help…… This air and sun drying process is slower (say 3 days) compared to high temperature or high pressure filtration and would clearly be extended under rain conditions. Also however note that water is very minimally absorbed because of the binding agents in the concentrate and does not cause material run-off.
4. Your Smelter concerns ….you wrote: The management plan to build a smelter, which, in my view always seemed unneccesary, and not likely cost-effective, what with much cheaper labor and existing smelter operations available in the Orient, is now on hold. I like this change of plans, and I hope that management sees that further dilution resulting from likely sale of additional shares/borrowing at now higher interest rates for a smelter construction project is simply not accretive.
Response: There are a few issues here and this can be a complex situation. There can be somewhat of an inversion of normal(first glance) thinking also, where the accepted practice of custom smelting or refining is involved. One very important aspect IMHO is probably well described by the present marketplace situation with a different commodity…. Molybdenum. The price of molybdenum is above $30 at present from an average of around $3 a few years back and the supply demand problem is not a supply of Moly feed…….one can, but doesn’t even have to mine more Moly to significantly increase the supply, just tune some of the mineral processing circuits differently with a focus on increasing the Moly yield….however the current world Molybdenum scarcity is a roaster capacity problem. Now a connection between this situation and lead refining is IMO that (a)when lead prices are rising, refining to metal rather than producing lead concentrate may not provide superior ROI, because of the industry approach of custom processing for a fee(competitive reduced fee because of feed shortage or over-capacity on the processing side) or (b) On the other side, when lead prices are dropping(over supply) and the custom processors can charge more because suppliers are competing with each other to get their feeds accepted for processing.
In my experience, the manner in which a refining operation would be accounted would be approx. $0.05 or $0.06 reduction in lead production costs, rather than increased revenues to Ivernia.
5. Your Comment: So far, I am underwhelmed by managements progess toward goals. There seem to be new 'challenges' and additional, unexpected costs with each quarter, as well as serial declines in actual production/results
Response: Partly the nature of dealing with mining and mineral processing start-up and even ongoing operations….every shovel of ore is different and continuous processes are very different from discrete processes. However, that being said, many participants in natural resources operations, with their traditional large capital investments and very long project or life cycles, lean to the optimistic side in dealing with their many uncertainties. Reflective 20/20 is a both a great learning opportunity and a humbling experience. The management of Ivernia undertook an extremely aggressive schedule to opening this Magellan mine and mineral processing operation.
Your reference to “serial declines in actual production/results” seems completely out of character with your usually accurate and astute DD. I suggest that your statement is unsupported by actual data and I provide the following extracts for ease of reference:
..................................Q1,2005 Q2,2005 Q3,2005
Production(Actuals)
... Ore mined 000's tonnes 159.9 128.6 301.6
... Waste mined 000's tonnes 448 735 735
... Ore milled 000's tonnes... 71.7 158.4 269.9
... Head Grade in ore.......... 6.4% 5.3% 5.9%
... Recovery..................... 72.9% 54.5% 54.6%
... Concentrate Prod. 000's t.. 5.2 7.4 13.5
...Concentrate lead content(grade) 65% 62% 64%
...Contained Lead (K tonnes) 3.36... 4.6.... 8.6
... Lead (Million lbs.)........... 7.392 10.12 18.92
6. Your Comment: Looking at the chart, and trading patterns, I still see no resolution of the huge downward pressure of massive share overhang, post buyout of Sentient. This still looks like a short at 1.70 range and a cover at 1.25 range, wash, rinse, repeat.
The only thing that would change this would be execution by management, meeting their own stated objectives on their own time schedule. It has not happened yet, meanwhile it's still short-bait at worst, and dead money at best
Response: I think that we should take very seriously your well informed and analytical capabilities in the Charting technology arena. You are certainly much ahead of where I am on this aspect and I have appreciated your experienced interpretations in the past,
Peace,
Good Decision-making to All,
ElJ