RE: Goldbuggy2/ T#1Thank you for the kind words. I am always glad to communicate with an investor who does his own homework on this stock T#1.
I think you captured this stock analysis very well. No doubt SGA is under valued, and they will find much more gold there, and the government is very welcoming, and that they only have to revamp the plant and not construct a totally a new one, so they will save on Capital Costs, and all as you have suggested.
To be fare to this stock though, and to try and look at both sides of this coin, there is some negatives to it to. The unexpected Capital Cost of $72M, seems a bit high to me, when much of the major equipment is already there. Some new but cheap Heap Leach Plants can be built for $30M, and a small CIL Plant for about $50M, so now you see why I think $72M is quite a bit for a Plant Revamp.
The bonus to this, of course, is that we will not have long lead times waiting to order new equipment, which means we will be able to get this plant in production in about 6 months after financing, instead of the normal 1.5 to 2 years. I also think that they over estimated this Capital Cost, as Australian Miners like to do, so I think it will be less than this.
The Cash Cost per ounce to mine this gold is $388 for the present life of this mine, which is not exactly something you want to write home to brag to mom about. This cost is still below the average cost of all miners, but you have to keep in mind that the average cost includes solid gold producers, like Gold Fields, and not a Junior starting out on their first mine. This may be our biggest negative right now, and to me the biggest unpleasant surprise.
But on a company, who is highly undervalued in the first place, this should not have reflected on our share price right now, except for a few scared chickens. I do strongly believe that they will reduce this cost very significantly anyway, by finding an alternate energy supply (other then using expensive imported diesel fuel), and I also believe this will boost this stock as well.
We just need to wait until there Alternate Energy Feasibility Study is completed. At any rate, it will not stop them, or slow them down, from building this mine. As the man said, "It will just change a good gold mine into a better one".
Financing may also be scaring some of the big guys away for the moment. Nobody really knows how SGA will finance this. They will need about $80M, to tide them over until the mine is producing, and if they do this by the highly unlikely method of share dilution, then they will need to sell about 55M shares more, plus free options. This would cut all of our profits in half.
But my research says they will not do this. They may need to sell some shares, but most of this cost will be through a Bank Loan, although they may be forced by the bank to "Forward Sales" some of their gold, which hurts a little bit in a rising gold market.
But I do believe, because of the great future prospects of this mine, and its importance to the country and islanders, in generating Tax Revenue and Employment by building this mine, that they will get a good deal by the end of the day. Maybe even some support from the World Bank.
As I said before, and in which you did not mention T#1, and in my opinion is a very big plus, is that this company is about 88% Institutionally Owned. That means that if they dilute our shares, they would be cutting their own throats to, and thus this will be a last resort for them to do so. This is also why I feel they will go out of their way to find a good deal for all of us.
One negative topic, which isn't discussed much here, as it is not well know, is about their further exploration possibilities. I have no doubt they will find more gold there. A lot more gold! But the negativity in this may be which type of gold will they find.
As you may or may not know, Gold Ridge has two types of gold, so far. "Oxidized Gold", and "Semi-Refractory Gold". Most of our known gold is oxidized, and I believe comes from the Valehaichichi Pit and Namachamata. It is easy and inexpensive to extract this type of gold, and recovery rates are high and usually in the low 90% range. This is also why our further drilling occurred at Valehaichichi and Namachamata, and not in the other two pits, which have known "Semi-Refractory Gold" there.
One point to mention is that "Oxidized Gold" is usually near surface gold. A different way of looking at it is that it is gold which has had an opportunity to mix with Oxygen, for example with rain water, and thus rot in a way iron would rust. This makes this gold highly prized as it is easy to extract out of the ground, and also easy to extract using a CIL Process.
But "Semi-Refractory Gold", and worst yet, "Refractory Gold" is not like this at all. It is usually deeper and does not come in contact with Oxygen. It therefore sometimes bonds with other metallic compounds like arsenic, our sulfur, which forms a hard unpenetrable layer, or coat, around it. In the CL Process, it will not let the Cyanide in to absorb the Gold, as it will run off like water does on oil, so recovery rates can be very low.
As it stands now, the "Semi-Refractory Gold" at Gold Ridge is just that. Semi or partial. Which means in the other two pits not all of it has a protective coating of Arsenic or Sulfur Compounds. This is why they plan to mix it with their "Oxidized Gold" and although our recovery rates are not that high, because of it, 82%, they will recover a lot more gold this way.
But what would happen if the gold they find now, which they are looking deeper for, all turns out to be "Semi or Refractory Gold"? What European Goldfields does with theirs is stock pile it, and hope they can sell it to someone else on a rainy day. This is because with Refractory Gold you may only recover 33%, which does not pay for the chemicals, and pulling this out of the ground. Without pre treatment, it is the closest you can get to waste rock.
Although this is not officially written anywhere however, SGA already has a solution to this problem, should this happen. One of their biggest share holders, "Golden China Resources" has the rights, and technology, to build Bio Treatment Plants. This technology changes Refractory Gold into Oxidized Gold, and achieves the same recovery rates in the 90% range.
The cash costs are a bit higher, some $20 per ounce if I recall, plus also there is an extra Capital Costs involved to build this Bio Treatment Plant, which is fortunately quite low. But at least they do have someone to sell it to on a 50/50 share profit basis, which is far better then stock piling this gold, and getting zip for it, if you cannot sell it to someone who can treat it.
This is also why SGA & GCX have an agreement of understanding in which GCX will have first rights at purchasing any Refractory Gold found at Gold Ridge, and at a certain depth.
These are some the negatives, but as you can see they are not problems that cannot be easily over come by this Management Team. In my view they don't come near all the positives of this mine, and explain this current share price of this highly undervalued stock.
As you suggest T#1, almost the only other place for this stock to go is up, in mutipuls. But it will take some patience and internal fortitude, from its investors. There will be many big guys coming around and shaking this Apple Tree, to see who falls out, before they jump in with both feet. Of this you can be sure!
I can only suggest to ignore the current stock price, and plan to hold for awhile as it is not near the true reflection of what this stock is worth.
I saw yesterday how 500 shares took $1.5M off of the Market Capital of Golden China Resources and this happens to SGA a lot to. That means for each one of these 500 shares sold at Market Price it clipped a value of $3,000/ Share off of the Market Capital of that company.
Today I saw 11,800 Shares of SGA take away $4.4M from the Market Capital of Australian Solomons Gold. That is a value of $375 per share. So is that a true reflection on what this stock is really worth? I think not!
GB