RE: RE: Charlwood??
Hi ccharlwood,
Thanks for the thoughts on everything. I appreciate the feedback you are getting about Prognoz. I would like to provide my feedback also, if you don't mind.
I would like to challenge the notice (those people are providing you) that Prognoz is too overwhelming for HRG.
Firstly, I would like a truly independent mining engineering firm to perform at least a pre-feasibility study before any write down actions are taken with Prognoz. IMO, it is completely irresponsible to write down a world class project like this without performing the appropriate comprehensive independent study by technical experts in the field. A pre-feasibility study will provide a comprehensive technical and economic examination of key parameters for large scale mining. Without seeing data from such a study, I feel totally uncomfortable with such a write down of Prognoz.
Secondly, I am viewing Prognoz as the type of world class silver project that ultimately realizes a 50 year mine life. In addition, with an incredible high grade of 25 silver ounces per ton, I am viewing Prognoz as having a cash cost per oz of $2 or below (and could be even lower as those Prognoz tonnes come with by-products that can be used as by-product credits to lower cash cash even further). As a result, there is no urgency to go all out spending with Prognoz right now - the extremely low cash cost per oz means that Prognoz will be extremely profitable in any silver price environment, whether silver hits $30 or falls back to $5. There is no drop dead time line because of the high grade component.
In addition, Prognoz would be extra challenging for a pure exploration company. Fortunately, HRG is a significant gold producer (not an exploration company) in a period of all time gold price highs.
330,000 annual gold ounces of production from HRG
US$1,100 gold price, US$430 cash cost per oz
It means that HRG will be generating at least US$221,000,000 in gross operating profit per year over the next few years. Let's say that the gold price averages US$1,100 over the next 3 years. That would mean US$663,000,000 gross operating profits for HRG (prior to paying off existing debts, paying Corp G&A, improvements on current operating properties, taxes and Bissa work). However, there should be plenty enough cash left over to allocate towards additional exploration work and more comprehensive studies on Prognoz over the next 3 years or so.
In 3 years time, once the property is ready to be developed, funding can come from the following 3 sources:
1) significant profits from HRG's gold operations
2) non-recourse project debt financing
3) if necessary, issuance of HRG shares (HRG's share price should be at least $5 by then)
Let's say it takes $1.25 billion to develop Prognoz to production, with development period being 4 years once construction begins. Here is how the development can be funded:
1) contributions (to the Prognoz development efforts) from HRG's gold operations (over a 7 yr period) - $350,000,000 ($50M per yr for 7 yrs)
2) non-recourse project debt - $400,000,000
3) issue 100,000,000 HRG shares @ $5 per share - $500,000,000
Here is what I see as the long-term economics of Prognoz, if they do this right:
*50 years mine life
*Prognoz has about 32 known minerialize veins. We have only begun exploration efforts on 2 veins (and still ways to go on those 2 veins). There will be additional minerialized veins discovered in the process (in addition to the 32 known veins)
*we have 205,000,000 silver ounces so far, just from incomplete work from those 2 veins - this is equivalent to 4,100,000 gold ounces
*I fully expect to see at least 1,000,000,000 silver ounces eventually - this is equivalent to 20,000,000 gold ounces
*sub $2 cash cost per oz silver - in gold terms, this is equivalent to $100 per oz gold
*let's use 50 LOM silver price of $16 - this is equivalent to $800 per oz gold price, based on long-term gold/silver ratio
*LOM average production of 20,000,000 silver ounces annual - this is equivalent to 400,000 annual gold ounces on a LOM basis
*we are looking at the potential for $14,000,000,000 in LOM gross operating profits
Here are some added benefits to Prognoz:
1) The type of mining we will use at Prognoz is called adit mining. This is because the silver ounces are located in hills - for the most part, the ounces are located above surface. The ore bodies are horizontal or near-horizontal. We will go through the sides of the hills. The use of ramps and shafts will be extremely limited (huge mining advantage). Adit mining is way easier to perform than underground mining. Here are very noticeable advantages on the project plan:
a) far less capital expenditures to build adit mines versus underground infrastructures
b) much faster to develop and bring into production
c) substantially less cash cost per oz
2) With production of 20,000,000 silver ounces (or 400,000 gold equivalent ounces) we are looking at amazing economies of scale
A another successful Russian project located in a remote location:
Kupol, now owned by Kinross. However, it was Bema Gold that did almost all of the work. Bema Gold was the size of HRG. They even had to build an airport. Kupol is hugely successful.
In my view, Prognoz can be handled by HRG, if done properly. I see Prognoz as being a 50 year mining operation, which will be capable of being successful in any type of silver market (a core operation for HRG). I believe that HRG is well positioned to enable Prognoz to begin contributing to share price within a year (or so) and to bring it into production within 7 years (being conservative), without materially diluting HRG sharesholders.