OSU raising cashWill OSU have to go to equity market to raise more cash? Yes, this is possible. However, as posted, I believe this is not likely if OSU is processing ore grade consistent with its Tech Report and is operating at 65% capacity as reported. OSU should have more than enough cash in this scenario which was implied by their recent 2Q08 quarterly results.
Well then many of you are asking, why is OSU commenting on "going concern" issues in their latest 2Q08 results, i.e. they may not be able to raise cash. The answer to this is simple, lawsuits. OSU and/or their auditors can be sued by issuing positive news that later turns out to be not completely factual. OSU will not be sued by issuing more negative press releases, that later turn out to be too pessimistic. Thus, OSU will err on being overly pessimistic rather than optimistic, until such time as they have reached commercial production or are very confident that they will reach commercial production.
Take the current EPM/OSU lawsuit involving derivatives. This lawsuit claims that certain investors had no idea EPM had gold derivatives ==>even though everyone here on this board and anyone with any sense and can read knew that EPM had hedged 50% of their gold production at $575 per oz. These lawsuit investors did not like the way that EPM disclosed their derivatives on their income statement and balance sheet, and the EPM accounting treatment was somewhat confusing. But any investor that can read footnotes or read prior news releases, or can just view the EPM investor presentations knew that EPM had hedged their golds and thus had derivatives. Does not matter, EPM now has a frivilous lawsuit on its hands.
OSU/EPM could release a very optimistic news release that they WILL hit commercial production within weeks, and then all of a sudden an earthquake hits or a fire starts in its buildings or the coldest winter in 30 years hits, etc. All of a sudden commercial production would not be obtained within a few weeks, and EPM/OSU would have another lawsuit to contend with... Auditors do not like being sued and neither does OSU management.
I sure would like OSU to disclose and report on ore grade, however. OSU really should do this. However, this is a brand new mine and ore grade may be inconsistent. OSU may truthfully report that their average ore grade was 1.4 grams gold equiv per ton average for the 2Q08. Then all of a sudden, the ore at the bottom of the stockpile turns out to be much lower at 0.9 grams/tonne. Thus, another potential frivilous lawsuit for OSU reporting incorrect grade, they should have somehow known about this lower grade ore at the bottom of the stockpile. Nonetheless, OSU should disclose current ore grade for investor transparency and for good financial reporting practices. But please note, releasing this grade data can only get them in trouble, saying nothing about grade avoids a potential lawsuit.
Thus, the key point once again:
"OSU will err on being overly pessimistic rather than optimistic over the near future, until such time as they have reached commercial production or are very confident that they will reach commercial production."