more detailed estimates for cy13, page-17

Some thoughts on Duckhead, and consequently revised estimates for CY13.

Duckhead has two lodes: "main high grade lode" ("Main") and "new hangingwall lode" ("HW"). Both lodes start at ground level, ie there is minimal ground cover that needs to be removed before starting. The outline of the starter pit shows that some unproductive rock needs to be removed. The two lodes have the following starter pit grades:

Main: 94,000 t @ 30.9 g/t
HW: 584,000 t @ 3.8 g/t
Overall: 678,000 t @ 7.5 g/t

Judging by their surface area they are both approximately the same, with HW being about 50% larger surface area than Main. However, their volumes are different with HW being approximately 6 times the volume of the Main lode.

Therefore, initially there might be a 1:1.5 ratio of ore mined from Main to HW. This will be expected as it is likely that the higher grade will be selected first. However, over time this ratio is likely to change to 6:1 HW:Main, based upon the volumes of each lode.

What this means is that the average grade mined will be:

Initially: 14.6 g/t, reducing to
Overall: 7.5 g/t

This may be conservative: the main lode continues to give very high values (an ASX release today as I write this shows even more), and the company will probably concentrate on this part of the pit first.

I am going to assume that this initial period extends only from Jul-Dec 2013, and that after that the grade will revert to the overall value as HW is much larger than the Main lode.

How much can we expect to be mined this CY from Duckhead?

Up until Jun 2013 I have assumed nil from Duckhead (there might be a small amount but mostly the starter pit will be excavated). From Jul-Dec I can only guess, but here are my guesses:

Ore milled 12,000 tpd for 28 days per month (allowing for a few days maintenance each month).

Of this, 10% comes from Duckhead (14.6 g/t) and the remainder from current pits (1.6 g/t). This gives an overall grade of 2.9 g/t.

Changes to estimates for CY13

I refer you to the post at the beginning of this thread. There I assumed that the average grade once Duckhead comes on line increases to 2 g/t. Revising this to 2.9 g/t gives the following changes (in italics):

Gold Recovered

Jan-Mar: 30,451 oz (a)
Apr-Jun: 14,700 oz/mth
Jul-Dec: 31,000 oz/mth
Total CY13: 260,551 oz

Production increase due to Duckhead depends upon timing of Government approvals. Assumptions are:

Gold ore milled: 11,000 tpd for 28 days/mth Apr-Jun; increasing to 12,000 tpd Jul-Dec (28 days allows for maintenance)
Head grade: 1.6 g/t Apr-Jun; 2.9 g/t Jul-Dec
Recovery: 93%
Conversion: 1 t oz = grammes x 0.032151

Revenues

Jan-Mar: A$35.5m (a)
Apr-Jun: A$61.4m + A$4.3m for a US$100 increase in gold price
Jul-Dec: A$273.5m + A$18.2m for a US$100 increase in gold price
Total CY13: A$370.4m + A$22.5m for a US$100 increase in gold price

Assumptions are:

Gold price: US$1,420 per oz
AUD:USD 1.02
US$80 per oz for iron ore offtake Jul-Dec (worth A$14.6m). Company guidance is US$100 per oz.

Costs

Jan-Mar: A$40.2m (a)
Apr-Jun: A$35.2m
Jul-Dec: A$77.4m
Total CY13: A$152.8m

Assumptions are:

Costs are inline with forecast from quarterly report for next quarter, then increase by 10% for second half of the year. Costs include interest payments.

Cost per oz

Jan-Mar: US$1,346 per oz (a)
Apr-Jun: US$814 per oz
Jul-Dec: US$416 per oz
Total CY13: US$586 per oz

Does not include iron ore offtake, taxes or royalties

Taxes, Depreciation & Amortisation

Jan-Mar: A$0m (a)
Apr-Jun: A$5.2m + A$0.9m for a US$100 increase in gold price
Jul-Dec: A$39.2m + A$4.5m for a US$100 increase in gold price
Total CY13: A$44.4m + A$5.4m for a US$100 increase in gold price

Assumptions are:

20% of the difference between revenue and costs. The 20% rate is a guess and includes all taxes, royalties, etc. as well as depreciation. I suspect this is an over-estimate but I like to be conservative.

Earnings

1H13: A$16.3m + A$3.4m for a US$100 increase in gold price
2H13: A$156.9m + A$13.7m for a US$100 increase in gold price
CY13: A$173.2m + A$17.1m for a US$100 increase in gold price

EPS

1H13: 2.2cps + 0.5cps for a US$100 increase in gold price
2H13: 21.1cps + 1.8cps for a US$100 increase in gold price
CY13: 23.3cps + 2.3cps for a US$100 increase in gold price

At current share price the forward PE ratio is about 4.

A note of caution

These results are so much higher than expected that I have significantly reduced the amount that Duckhead will add this CY to only 10% of ore milled. It really goes to show how important Duckhead is to the performance for the company. Any delay in Duckhead will have a material effect.

However, at current share prices even with NO Duckhead at all, the company is undervalued. Duckhead provides the turbo boost for future earnings.

All of the assumptions relating to Duckhead are just guesses. I look forward to hearing more from the company when Duckhead is started.