RE:Questions re: Latest MD&AHi Busta,
You raise two reasonable questions, but your thoguths on the answers are wrong:
1) Put options. You didn't quite look hard enough at the latest MD&A (searching is helpful ;0)). Try p45:
On July 11, 2013, the Corporation purchased, for $3.5 million, 54,000 ounces of gold put options at a strike price of $1,150 with eighteen equal monthly settlements from August 2013 to January 2015. This period corresponds to the higher capital expenditure timeframe while the Agbaou mine construction and ramp up was being completed and the Segala underground mine at Tabakoto is being brought into commercial production. As at September 30, 2014, 12,000 ounces (9,000 in 2014 and 3,000 in 2015) of gold put options remain outstanding with a fair value of $0.06 million (December 31, 2013, $1.9 million). During the nine-month period, 27,000 ounces of gold put options expired, and an unrealized loss of $1.8 million was incurred on the mark to market of the outstanding put options ($2.2M in 2013).
The purchased options have, so far, expired worthless because the gold price hasn't gone below $1,150 on an expiry date. Not may of them left now, unfortunately, but they've achieved their purpose of mitigating the risks that Agbaou fails to recoup its costs due to a real crash in the gold price. As we know, Agbaou is producing excellent cashflows now, even at relatively low gold prices.
2) EBITDA debt covenant. First, $300m is
not net debt but gross debt. We also have over $55m of cash, so net debt is $245m - and is likely to decline further as FCF turns positive, with heavy CAPEX on Tabakoto/Segala and Agbaou reaching a conclusion. Second AISC is
not the cost figure to use to estimate EBITDA because AISC includes the "D" and "A" elements of EBITDA (roughly). Cash cost is a better cost figure to use, to get an estimate of EBITDA. Using AISC gets you an estimate closer to EBIT, rather than EBITDA. EBITDA in the last quarter alone was $37.6m (with a $1,273 average realised price).
Based on the 114koz sold in the quarter, that EBITDA figure equates to an EBITDA margin of $330/oz. So, let's knock $130/oz off, allowing for a price reduction to $1,143/oz - but not taking into account further cost/oz reductions expected in the current and future quarters. That still gives us $200 of EBITDA/oz sold: $90m for a year of 450,000oz production. With net debt of $245m we only need $75m to meet the covenant, so a breach doesn't look too likely unless the gold price falls significantly further.
Hope that gives you some comfort.
Cheers,
Mark