up up and away, page-3

Not sure what fundamentals your looking at Dilema?

For me with limited value in NZ operations, the value could be traded much lower. It obviously depends a lot on gold prices and to a lesser extent copper prices but I would be weary of thinking its a bargain just because its below $2 with gold where it is right now. For full disclosure, I am short OGC stock at the moment. I try to be objective and certainly always post my true thoughts but I inevitably will have something of a negative bias, just as longs have a positive one.

This is now i look at it:

Enterprise Value

Net debt $170m, mkt cap at close $563m,Ent Value $734m.

NZ

The NZ business has relatively short life mines. Of the 245,000 oz capacity, 65k is due to complete in 2015 and 45k in 2017 with the balance in 2019.

Its also a high cost business reporting cash costs last year of $940 before $200 pre strip costs. In real terms, they sold 230,000 oz of gold at an average price of $1675. The result was operating cash of $115m. From that I would deduct what they catagorise as payments for mining assets in production of $79m. So net cash flow before exploration of only $36m. (From the cash flow statement in the annual report:http://www.asx.com.au/asxpdf/20130214/pdf/42d10rgvv2w290.pdf). The current gold price of $1380 is $295 lower than average realised last year, multiplied by 230,000 oz means on the face of it $68m less cash flow this year and the NZ operations clearly cash flow negative.

It had been suggested even when gold prices were at the highs that the highs that NZ operations should be shut down. If gold doesn't bounce or certainly if it goes lower, those calls could get louder.

The value of NZ is very much leveraged to gold prices but at the moment, with gold prices seemingly below where they need to be to generate cash, its value is very limited if anything in my view.

Didipio

Didipio is the opposite to NZ as it has a long mine line, 16 years, and low costs, at least the way costs are quoted net of copper credits.

The problem is, in the context of a $700m plus enterprise value, is that its only a 100,000 oz gold operation, at least before more capex is spent. The cost numbers given of slightly negative per oz net of credits are both unproven at this stage and heavily dependent on copper prices. Using company guidance of negative $79 cash costs at $3 copper (http://www.asx.com.au/asxpdf/20130319/pdf/42drm54s8w03gm.pdf), gives cash profit of $146m on 100,000 oz at todays gold price of $1380. There are however several problems with this number:

1. Unproven
2. Doesn't deduct pre strip costs or royalties etc.
3. $93m of it comes from selling $31m pounds of copper at $3. Copper is above that just now but historically has traded much cheaper and is falling fast. See last nights CNBC news: http://www.cnbc.com/id/100649649
4. Sovereign Risk.

Its hard to say what Didipio is worth at this stage, weighing up sov risk, commissioning risk, commodity risk and versus long life and low cost. I think in current tough market it could be traded pretty cheap though.