ann: trial mining update, page-13

At 2.6c we are still strongly outperforming our peer sector (explorers) and still outperforming quite a few producers so the sp is reflecting a weak sector rather than anything ABU specific IMO.

I see ABU as being one of the more likely gold stocks to please the market over the next year.
Most producers have been experiencing problems with the POG although that situation has eased significantly recently with AUD POG back above 1450 after the 1300 low thanks to the down trending AUD.
ABU’s OP is expected to be very low cost and we expect to see first gold next month, on time and on budget.
I just had another look at the scoping study which had the following for capex;
“plant is estimated at $15M with an additional $12M required for a power plant, camp facilities, equipment and site works."
The $15mill has been reduced to just $3mill including installation, partly thanks to a smaller plant but that is an excellent outcome. The other $12mill has also been heavily reduced and total cost for trial mine is now just $5mill, including trial mining costs – most of which is expected to be recovered by the proceeds of gold recovered and sold.


We should see a ML around the time trial mining finishes and then move to stage 2 for 150ktpa at very low cost.
Year 1 will see the very high grade GH blended with OP and I think that grades between 12-15g/t should be a reasonable estimate for the first year especially with such a comprehensive amount of work done on near surface grades and that GH is at indicated status at very high grade.
At stage 2 capacity of 150ktpa and 92% recovery (hopefully conservative considering test results to 97.3%) assuming 13.5g/t for year 1 would give gold production of 60koz.
An excellent outcome for such a small and inexpensive plant thanks to grade.
At spot gold of AUD1457, revenue comes in at 87mill. Assuming $500 cash cost before royalty seems reasonable. The scoping study estimated $383 at higher throughput. Year 1 will now have lower throughput but higher grade and much lower strip ratio thanks to GH’s from surface wide zones of very high grade ore (scoping study cost was for entire open pit to 100ms deep. Years 1 and 2 will not get anywhere near that deep hence much lower strip ratios).
That gives me an operating profit of $55mill before royalty. I deduct 15mill for exploration, 5mill for admin and 1mill for ongoing capex (repairs etc) and after allowing for royalty I arrive at $28mill NPAT (I expect no or little corporate tax with high carried forward losses likely to offset for years).
By year two we should be up to closer to 300ktpa. I assume grade of 10g/t but I expect that to be conservative. I leave cash cost before royalty at $500 even though production is close to the rate in scoping study which estimated $383/oz. I arrive at $49mill NPAT for year 2 using those conservative assumptions. That puts us on a PE of less than 2 at full production!
If I use scoping study assumptions on grade and cash costs (but stay with 300ktpa) I get 72mill NPAT which is not far off our mc! ($92mill at 2.5c)- Forward PE less than 1.5.
This is all at the currently heavily corrected POG. We may see considerable upside in POG if AUD continues lower as the RBA says is justified to reflect much lower commodity prices. I.e AUD has fallen but not nearly enough to reflect the fall in iron ore/coal/copper etc. Another one or two rate cuts might see the AUD break its current support around 94-96c and fall to 85c. GS are calling for two rate cuts with a rate cut next month- in time for our first gold production.
85c and a flat USD POG will see AUD POG jump to $1620. If that happens it will do wonders to sentiment for our entire gold sector.
As long as commodity prices stay down and we cut rates, it seems a likely eventual and not far off outcome. Any rise in US POG would be a nice nut not necessary bonus.
Even with the status quo on gold and AUD, ABU’s numbers are looking very strong.