RE: RE: I'm out Good luck MrGRP. I wrote at length but the short version is that I expected them to post a profit. I understand that they hit a couple of bumps in the road and experienced some downtime -- that's not unreasonable given all the recent work -- but ultimately their production was pretty good this quarter: 25,249 oz.
What troubles me is the cash cost per oz of $1737 resulting in a loss of $130.6 / oz. Those costs are not going to suddenly fall as they ramp up to their production targets. In retrospect these results were largely predictable and I overlooked the magnitude and longevity of the forward gold purchase agreements, which ensure that private parties will be feeding at the trough for quite some time before shareholders receive a portion (see p14 of MDA).
Revisiting the numbers, it appears that the anticipated ramp-up in production will be generally matched (and occasionally exceeded) by an increase in the quantity of gold delivered to DB and other debtees. In Q1 the quantity of gold delivered to debtees was 4000 oz, representing 30.5% of production. In Q2 this increased to 7950 oz, representing 31.5% of production – a similar proportion, explaining the similar cash costs across both quarters.
This is where it gets ugly. In Q3 the quantity of gold to be delivered to debtees increases to 14,110 oz as the higher rate of repayment to DB kicks in and a one-off 3830 oz delivery to another counterparty becomes due by 31 August 2012. In Q4 23,869 oz are due for delivery to debtees, including a one-off 8929 oz delivery due in December 2012 to another counterparty. Assuming production of 100,000 oz in H2 2012, that comprises 38% of H2 production – suggesting costs per oz are likely to become worse in the months ahead. It's no wonder they are already seeking financing. Also, the onset of the first winter since winterization work was completed may expose other issues resulting in further downtime – hopefully not, but it's a reasonable scenario for the first year.
Afterwards, from Q1 2013 to Q3 2015, 14,940 oz per quarter is due for delivery to DB, accounting for 30% of production (assuming 200,000 oz per year in 2013). That seems to suggest even with production meeting targets, cash costs will remain comparable to those observed in Q1/Q2 2012 throughout 2013.
The good news is that assuming the Company arrives reasonably unscathed to the end of 2015, the gold-forward purchase agreements will be repaid and profits will start to trickle through to shareholders. As that time draws closer a major re-valuation of the Company should be warranted. Of course a lot could happen between now and then. A takeover is still on the cards imho.
Good luck all, I'm keeping YNG on my watchlist and have not ruled out re-entry at some point in the future.
all imho, dyodd