re: cards on the table time..."i am sorry this letter is so long, i did not have time to make it
shorter".
winston churchill, 1930
so some of you are baying for my blood, and that of my "source"
frankie (?) well here it is:
if i can just refer to fact, not f(r)iction:
capex:
capital costs have increased xx but xx has any one looked into
why?
1. the mining fleet went up 26 mill - because they chose to
access the higher grade
ore right from the get go. i'de call this smart as it optimises cash
flow.
2. the tailings dam increased to 70 mill - well, frankly, further
testwork by SNC Lavalin into ground stablity found the previous
outlines wanting. the old base case engineering was simplistic.
3. the village community. moving them NOW rather than later in
stages needs an increase in capital - guess what? the folks
want to move sooner rather than later... duhh. do you want 20
fish in your net now, definite... or MAYBE 23 or 24 later on if you
stay out on the lake in all weathers for another 2 days... the risks
are lowered the sooner they move, so i'de call this a smart call in
getting them out earlier.
cash costs:
operating cost went up because
1. they put in a cyanide destruct circuit. it may be 7 or 8 mill, but
these guys know what the banks baulk at, the enviro stuff. so
management cleverly ensured that this project remains
finaceable.
2. power costs - i think the base went from from 2.4 to 4c per
kWH which is inline with market power costs. please advise me
otherwise. maybe frank can negotiate this one down given time.
we'll see. i do know that power costs in romania used to be
subsidised but it's all changing now in preparation of EU
inclusion. i do draw your attention to the fact mentioned in the
press release that management feel there's an opportunity to
lower these costs through long term power contracts. go frankie.
now get a grip, 'cause i think you're ALL MISSING THE POINT:
10m oz of proven reserves at cash costs which average
US$129/oz for the first ten years is superb! where do you think
au will be in 5 years time? i'de bet my house we will be nearer
the 450's than tracking the old bear zone of 270. AND don't you
think gbu are not going to discover JUST A BIT MORE gold over
time? and at similar grades? tell me which mine has ever been
found that doesn't also end up adding at least another 50%
more proven reserve over it's mine life? they've been mining
here for centuries chaps. there is loads more GOLD. and it will
STILL be one of the lowest cost operations in the world... before
"finding" that other 4 or 5 mill ounces!! does barrick, does
newmont, does even randgold need it? you bet. +500,000 oz at
these costs is a TROPHY ASSET in this gold industry.
also, whilst you ask:
mines of this size cost in the order of US$400 to US$500m. it's
a fact of life. if we didn't have the village, the number would be
nearer US$370M. so, i think the capital cost is bang on whilst
the cash operating costs are still very favourable. plus, it's all out
there now for everybody to see. no smudging. no fudging. i bet
barrick's spreadsheet came up with the same numbers too...
so before you all run for the exits, just try to keep focussed on the
key points which i'm getting sick of reitterating - village and
permitting. when these are in place the seniors will jump all
over gbu in a final push for a price that'll be at least US$80 per
ounce in the ground. if you take a conservative gold price of
US$300 and remove the total prod. costs of US220/oz, that
leaves a healthy $80 margin. and once the bidding starts the
purchase price/oz will very likely go higher. with reserves
depleting and cash costs going up across the gold sector (q:
how many times in recent memory has barrick "dropped the
other shoe") - you tell me what a strategic low cost gold asset
producing 533,000 oz/year is worth? a lot more than today's
stock price i venture to guess.
imho, 2003 will see this company advance the village past a
point of no return and put the important Environmental Permit in
place - then it's a chequebook scramble... and i have 3 eggs in
mine.
topdop (...and good morning by the way; my mates tell me it's
quite cold in t.o.! ha!)