DML Update from Bob, page-61

I was the other (old) git that Okra mentioned asking the questions at the AGM.
As to numbers attending, I forgot to look around when the votes were taken, but I would guess that 20 shareholders would be about the limit.
I haven’t posted this earlier because I am not in my office and my internet connection is now as slow as a wet week, possibly because of some consequence of Thursday’s storm in Brisbane and people calling their insurers on their mobiles.

There is not much truly new information to report.

On the positive side.
The October production was said to be “in line” with the previous quarter.
The Plutus2 pit is now producing ore. It has 3 levels yielding sulphide, transitional and oxide ores, according to depth.
The quality of sulphide ore now exposed in the Zeta pit was said to make mining engineers drool.
It’s hard to imaging a piece of nondescript green rock making anyone drool, but there you go.
In respect to the underground mine plan, they are confident about the efficacy of the proposed underground sublevel caving in the narrow ore body.
The presence of the sandstone footwall is seen as positive for the sublevel caving process.
Mention was made about problems others have had with block caving in distinction to the proposed sublevel caving. (I will have to research that distinction.)
In response to a question about controlling the sublevel caving,the fact that the ore body will be about the same width as the access drives is seen as a positive in respect to controlling the process and recovering the ore.
The sandstone on the footwall side of the ore body is seen as a satisfactory material to mine in – it is abrasive on equipment but amenable to accurate excavation and thought to be not too hard.
The overall resource that DML has is large in comparison to what is currently being mined, with ore bodies open at depth.
The only way to unlock the value in the deposits is to transition to underground mining.
The plant has been run at name plate capacity and beyond on some occasions in the past.
(The nameplate capacity is 750,000t/quarter. Last quarter’s throughput was just over 700,000t)
The operation is now generating some cash, but of course that is before any provision for paying off the debt or the capex required for transition to underground mining.
The management all talk like the business it will continue – then I suppose they would, but I have the impression it is a genuine expectation on their part.
The mine is a substantial employer and contributor to the economy in that part of Botswana.

On the negative side.
There is no resolution with the lenders. Worryingly, DML do not seem to know what the lenders’ objection is.
DML have seen the lenders’ independent technical report, which raised some issues, but DML did not see those issues as being game breakers.
The lenders are simply not saying what they want. Evidently, DML do not have any right to be given reasons under the loan agreement.
DML simply do not know what the lenders are up to. (That has been stated to me three times by two different people on separate occasion, so I believe that is the case.)
The suspension is because of the breach notice.
I surmise the stock will remain in suspension until either there is a resolution with the lenders, or a new funding arrangement is reached with whomever.
The ever present option, while the lenders’ breach remains, is that the pin gets pulled.

DML think that the likely way forward is to obtain new funding so they get out from under the existing lenders, either in whole or in part.
That would seem to be the most rational outcome for all concerned.
If the lenders were to pull the pin and continue to run the operation as a going concern, there will be substantial costs to them.
If it were shut down for any significant period, the loss of value would be large.
DML are just as puzzled as the rest of us as to why the lenders are doing what they are doing now, after having agreed to the substantial haircut on the debt.

As a shareholder, elaborating negatives normally would be against my interests, but given the stock is suspended, I don’t think it matters.
If and when it comes out of suspension, the die will be cast and it will be whatever it is.
Amitabh Bachan’s estimate of 2015 for relisting might be right but I don’t think anyone knows what is going to happen, except possibly the lenders.

Bob Fulkner said that much of the low hanging fruit in mining and milling improvements has been achieved, but that there are still things to work on.
Vis-à-vis the hand to mouth cash situation, in response to a question, weather is acknowledged as a risk to continuous production, with the current wet season still to run its course – much the same season as in Oz I guess.
As would be expected, they have substantial bunds in place to protect the pits from external inflow and they have proactive condition monitoring of the equipment to minimise unplanned outages.
A mill reline was said to have been completed recently.
Any connection to the power grid is probably a few years off.
In respect to fuel costs, I believe it was said that the cost of fuel is stabilised by some sort of Botswana government scheme so it doesn’t move that much.
Some Googling might unearth what that is about.

Given that the project has been Jeremy Read’s baby from the start, I get the impression that, regardless of any other considerations, he really wants to see the mine succeed, as a matter of pride in something he started.
I get the impression that Bob Fulkner is really enthusiastic about the mining and technical stuff. It’s our loss that he wasn’t there earlier.

All the resolutions at the AGM had overwhelming proxy majorities >90% and went through on shows of hands.
Note that from the resolutions passed at the AGM, DML now have the capacity to increase the shares on issue by up to 25%.

With respect to the suspension, I believe the problem is that the breach notice puts them on the threshold of not being a going concern, so it is a delicate dance for the directors if they are not to be liable to anyone that buys into the stock while the breach remains in force.

To cap things off, I am being slaughtered in the market. If it was raining female film stars, I would get Lassie.