RE:RE:RE:RE:Connecting Otso GoldNew article from our Facebook group please join.
Laiva is a highly complex orebody. The challenge for the resource geology on Laiva historically has been to model the thin, high grade, gold bearing vein swarms. Historically, selective mining of small high grade units was not successful. The modelling strategy at best utlized previously between 2012-2017 was to model the Resources using larger blocks, that would result in larger mineable blocks (“SMU” – selectable mining units), which could be more accurately mined in the pit and therefore result in more gold being captured. It is important to note from a Resource classification point of view the following, since it has a significant impact on the LOMP: Selecting larger block size does, however, means accepting a higher dilution of ore since larger blocks will contain more low grade material and waste, since the ore bearing vein swarms are very restricted spatially. This a more robust approach to modelling and ultimately mining of a deposit characterised by highly variable grade in a spatially restricted and very complex orebody. To add in , Rock composition has high component of sulphide content thus providing sorting technology an opportunity to enable better through-put to the Mill. But in FY2016 what was experienced is that though the technology is super efficient , the business/investment case of scaling up sorting in a non-operational mine leads itself to blue sky thinking from a risk reward perspective.
The single biggest change in scenario is the Gold Price today at USD1800 an ounce. Can moneys be invested by institutional risk takers at todays gold price to get head grades upto 1,28g/ton and through put to 2.0mt/p.a?
Global institutional risk takers in the gold mining business know Laiva extremely well. Nothing is hidden from them. These Investors range from strategic mining players like Eldorado, Agnico Eagle to institutional/individual risk takers like Global PE players and Eric Sprott. This asset has passed 19 Instiutional investors from Russia-US-UK-Germany-Canada. Risk capital chases proven business models . They do not chase executional risks in business models. Risk Investors in the gold mining sector rarely take bets on blue sky thinking presented by Boards and Mgmts alike. Simply put they will not take bets on uncertainty which at best only funds management fees (Agency cost). Scenario becomes rather abject when since 2012-2016, fresh capital raising close to EUR81M has miserably failed to deliver any results either on head grades and/or mills through-put performance . Closer to recent experience , 17M was wiped off in a jiffy by Hepworth & Co represented by Cannacord. How, When, Where??
A good 21MEUR is required (+ or – 20% range) to converge operational metrics to financial investments in-turn defining an efficient capital structure for OTSO. 60% of this needs to go towards Milling process and through-put performance and 40% towards Mine.
The stress test of the equity story that would convince instituional risk takers is to produce an economical gold production schedule with 1,0g/ton and throughput of 1,6mt/pa. If this stress test passes muster (produces enough safety margins), the fair value of the mine at post Tax of USD72M (8x bet) is a realistic expectation. Pls remember instituional risk takers never base risk- reward scenarios on CGP (Current gold Price). They discount price scenarios by 20%-30% atleast and then figure out needed safety margins available in the operative model. Unfortunately without passing this stress test , risk modelling for risk-takers does not pass muster. Investment punt in equity and debt (optimal capital structuring) would be around EUR21M or thereabouts. This is serious risk taking by any standards without visibility of any real executable greed on the table.
Thus how to pass through with this stress test is the 8x question on the table indeed. The complex Ore Body is what it is. The Mill Design is what it is . Any amount of re-thinking on improving efficiency of existing ore body (and thus through-put) even after EUR81M sunk cost and 6 years of sunk time, is underlining stupidity of the very highest quality where one repeats, invests capital and time on the same activity over and over again expecting a different result. This is a FINANCIAL REENGINEERING BUSINESS CASE NOT A MINE -RE-ENGINEERING BUSINESS CASE. What is needed is a PERSPECTIVE change. The perspective of a Business Led Mining Case rather than a Mining Led Business Case. Artcile 3 will cover this perspective.
From: Connecting Otso Gold
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