It’s probably worth revisiting the scoping study numbers even though its out of date now thanks to a lower POG and staged approach to production but also because of an upgraded resource base with 43% more ozs and a 27% higher grade overall including a 56% increase in Indicated Resource grade. Also the capex has been reduced to probably around $10mill to full scale plant at 300ktpa – down from $27mill estimated in the study. The 257mill was net of $27mill capex so the reduced capex should add to total net cash flow.
$383 cash cost for OP estimated in the scoping study or just over $500 inc royalty and admin was before the discovery of the very high grade GH which should help offset potential increases in cash cost in the first year brought on by lower throughput. $257mill cash flow estimated for OP (excluding GH and based on the smaller and lower grade jorc resource only). Allow for a lower POG since the scoping study now $1450 down from $1600. Over the 261koz of production assumed in the study, that reduces cash flow by $39mill.
That $39mill should comfortably be fully offset by GH with its 50koz core at an extremely high grade of 45g/t from surface with good mining widths. GH cash costs should easily be below the $511 estimated in the study for OP. Therefore $50mill should be a reasonable number to add to the scoping study cash flow bringing it back up above the original $257mill to $268mill with $1450 gold (AUD).
However that only accounts for 50koz added since the maiden jorc used for the study while the resource has been upgraded by 184koz (with more discovered since) so there should be more upside than just that from the 50koz GH core that I just worked on.
We could easily end up with up to $300mill cash flow from open pits based on the scoping study and taking into account changes to the POG and resource since the study.
One big advantage is how rapidly the cash will come in. The scoping study had it all coming in over just 2 years but the new staged approach and guidance from the company is for 2- 3 years from open pit followed by potentially 2-3 years underground.
The study ignored underground and the cash flows estimated in the study and expanded on above were from pit only.
The big advantage with cash coming in that rapidly is that most goes to building the bank balance. If the open pit was stretched out over 10 years with say 30mill per year then that gives the company the chance to spend much of it on admin, exploration etc. Also the market discounts cash flow beyond 1-2 years on an increasing scale so $300mill cash over 10 years might be valued at only 70-90mill by the market while $300mill in 3 years with more to follow through u/g mining might be valued in excess of $200 mill and probably much more than that if the market sentiment to gold stocks starts to improve.
The $257-300 mill cash flow (excluding u/g potential) over just 2-3 years compares to the mc of around $90 mill leaving plenty of room for strong upside from here even if we do not get an increase in POG over the life of mine.
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