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04/04/17
22:20
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Originally posted by airconditioner
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Hi Scotty,
2017 production is spoken for.
45kt for Contract 1
120kt for Contract 2.
If there is any additional then it has been mentioned that this may be destined for the spot market - however my personal view is that this is simply a gambit for new contract negotiations -
ie "Do you want this extra shipment - or can I send it to those other guys who have been offering a bit more than you were paying?".
Don't underestimate AT's ability to negotiate price, particularly as there will be no other supply ready to go at the end of the year.
As for costs.
There is a slightly vague reference of the profit being something with a 4 in it when the price has a "7 in front of it".
Reference at about 17:00.
(but watch the whole thing as a video of a man who already knows he has negotiated a killer $905 contract and can't let anyone know quite yet...)
The video also reference a 70% target for recovery. 160kt was 50% recovery figure.
This represents the potential for further upside to production this year.
Other good stuff in there too. Just remember that his figures are based on a much lower estimate of price than was achieved for Contract 2.
I guess you could take that cost reference as representing a figure as high as $399/t - but there had already been reference to $260/t in an April 2016 interview - (I'll have to go digging that one up for a link) - so my guess is that the lower figure is more correct.
You can also work backwards from his estimate of free cash flow in the video and come up with the same $300/t costs.
Truth is we haven't got official guidance as to costs and I'm assuming that is because up until this point the costs haven't reflected steady state operation, with the plant now de-bugged and running at full throughput.
Any plant worker can tell you that commissioning can be a lot of downtime, long smokos as conveyors jam and obstacles cleared. This is the period we're emerging from now - with staff that know what they're doing and most of the kinks ironed out, bolts tightened etc.
I'd assume that the company will provide guidance as to opex with the next update on the mine.
So yeah - many assumptions in there... but what is important - is that these gravity-fed operations are cheaper to operate than those being considered by other companies with flotation circuits attached, and their references to costs therefore come with a question mark. Galaxy becomes the official benchmark. No wonder other companies are keen to lean over their shoulder to determine what production costs they can expect to be facing (or chasing).
Deutsche Bank projects a 2 year commissioning period for new mines with minimal production in the first year.
There may be quite a few surprises handed out, when other investors learn that it is Galaxy with the clear opex advantage of a steady state operation that is incrementally being tuned in for maximum efficiency (shock,horror).
Hope this helps you in your research.
AC
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Thanks AC. Yes I remember that statement now having watched this presentation ( around $400 margin, but could be higher given the contract price wasn't negotiated at the time of the talk). So around 70 million free cash flow but again could be higher.