Well I'm happy to report that I received a phone call from Steve...

Well I'm happy to report that I received a phone call from Steve McClare last night and can report that HGO do monitor HC. Points he raised are as follows;

1. Half year results due the end of the week will not be great but the reason for this is HGO has been mining the low grade HISTORICAL stock piles which from a cash flow perspective HGO feels the pain now but the outcome later (after the giant pit cut back completes) with regards to increased cash flow will SURPRISE the market.

2. The mining of HISTORICAL low grade stock piles will continue which will be beneficial to cash flow after the giant pit cut back completes. These HISTORICAL low grade stock pile from my interpretation are the stockpiles that would have been mined in 2018/19 in the current Life of Mine (LOM) plan.

3. The last two months and the next two months of the giant pit cut back are the most challenging and costly.

4. HGO cash wise, things will be tight for the next 9 months but HGO has a minimum cash balance target to not fall below $8M.

5. So far the grades for the month of August are running at 0.56% and the outlook for the next six months is similar grades. Better than the 0.4% last quarter!!!

6. Cash on hand is higher than June 30 but not greatly so. The June 30 balance was effected by a shipment missing the June 30 cut off by 3 or so days which was worth $6M. You can't add the $6M to increase cash on hand because of outstanding payments to creditors etc who are on differing terms, I.E 30 days, 45 days etc.

7. HGO at this point do not believe that they will need to raise additional cash but not knowing how the copper price is going to perform in the future, HGO will not guarantee that sometime in the next nine months that they will not require additional funds. The emphasis is that the next nine months, cash flow wise is going to be tight. Steve is aware that any capital raising at current prices would be significantly dilutive. Steve has a lot of skin in HGO and is down significant $$$ just like the rest of us and wants to get his money back.

8. HGO are 70% hedged for the rest of the year. My thoughts are assuming the hedge is AUD $3.52lb and the spot price at this mornings exchange rate is AUD $3.23lb then HGO is selling their copper for an average of AUD $3.43lb. I'm not sure whether HGO are getting $3.52lb today as that price is the average of the entire hedging out to 2017 and from memory the hedged price is lower today than it is in mid 2016 on wards so today's hedge price could possibly be less than AUD $3.50lb.

9. HGO continually working on reducing costs. There will be announcements within the next month on cost cutting strategies and the Indonesian assets.

10. Baillieu Holst analyst is well respected as a veteran analyst and he went through HGO with a fine tooth comb and the forecasts made in the report are correct. Steve disagrees with the 50% reduction in share price target but everything else is spot on and from Steve's perspective on the mark. Just for clarification, the Baillieu Holst report was written before the release of the June quarterly and Baillieu Holst analyst was not privy to the June quarterly results.

11. Due to tightness of cash it is envisaged that there will be no significant exploration expenditure until Jan/Feb 2016 which is prudent. Still waiting on results for the helicopter survey and some drilling.

12. HGO directors would love to buy more shares but have investment windows they must abide by. Thinking about this I overlooked the fact that the half yearly report is due this week and from prior experience staff and contractors of mining companies are not allowed to buy/sell shares for up to 4 weeks prior to any fiduciary reports. Boards obviously are further inhibited by being privy to market changing events so would also not be able to trade in shares if for example talks on funding, mergers, take overs etc were occurring.

13. Whilst HGO are aware of what is being said on HC, they do no not believe they should be reporting to the market more regularly than what they are doing. They believe in carrying on as if it's business as usual. Some of what is being said on HC in regards to cash costs etc are incorrect as in the example of the 3 day late shipment in early July which if payment had have been received prior to June 30 then cash balance would have been different. I will put my hand up and plead guilty to this! Having said this it stands to reason that payments for shipments could miss the current quarter and appear in the next quarters balance as staff bonuses are normally worked out quarterly and to attain maximum production bonuses and achieve their KPI's the mine site staff normally moves heaven & earth to get as much product through the mill and shipped off site by the end of the quarter.

In summary, Steve believes the market will start to realise the potentially unexpected cash generation potential of HGO in the next six months. The next six months is a game changer for HGO after having made the decision to mine Historical low grade stock piles 3-4 years earlier than the LOM plan schedule which will produce increased free cash flow from mid 2016 on wards. Steve is bullish on the future of HGO albeit referring to the next nine months free cash flow being TIGHT! Steve says the three major shareholders are happy with the Kanmantoo operations and all have increased their stake in HGO during the June capital raising. Price under performance is not due to the three majors selling out but due to market conditions. Steve advised me that HGO is tracking its peers in share market performance and I queried who the peers were and I indicated OZL was one I tracked and they are nowhere near 75% down in less than 12 months. Steve said he would email me the peer list which I will post when I get it.

On the discussion I had with Steve and taking into account the low but possible chance of a future capital raising after October 1 and noting the copper price has bounced back to US$2.30lb and the AUD has slumped to $0.71c I have upgrade my sentiment to BUY!

I should also add that when the DOW plunged 1500 points on the open Tuesday that the copper/AUD exchange price had copper at AUD$3.07lb so to rally to $3.23 this morning is a good sign, especially for HGO.