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DCN dacian gold limited

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Ann: Equity Capital Raising to Recapitalise Dacian, page-88

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energytsars

538 Posts.

154

09/04/20

15:16

Post #: 43975532
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Originally posted by qdos: ↑

Since DCN stopped trading at start of Feb.
1. AUD gold price up 14% from A$2334 to A$2683
2. S&P/Alll Ords Gold (Sub-Industry) off 9%

But apparently its hitting its production targets... with an AISC of circa A$1550...

We had a company with an Enterprise Value of $399.6m as at 29 Feb (Equity + Debt - Cash) that is now worth $158.6m per this deal. i.e. it has lost 60% of its overall value since Feb (a negative alpha of 50% against the industry benchmark)..NB that benchmark includes a lot of explorers too..

Now, we get a capital raise that tears the heart out of the business, drops its value by 60% and we have been locked up for 2 months with no ability to exit, with poor newsflow and now a half baked presentation talking about being profitable with an AISC of $1562 in the first half of this financial year and an AISC of $1650 in the second half of this financial year (i.e. now). Yet they still need to hold $70m as cash!

This company has died by hedging.. a case study in the failure of their hedging plan. They've used all their cash to pay premiums on losing forwards!

At 29 Feb their hedge book was 125koz at A$1,968. The last time gold actually traded that low was June 2019! i.e. they've been having to pay $$ out on top of mining costs to cover their hedge book. In Feb alone, they'd have had to pay ~$300/oz on top of their mining costs in hedging.. that's why a miner with a nominal ASIC cash margin of $400/oz has been burning through cash. That explains the circa $20m cash reduction at bank between the Dec Quarterly and 29 Feb in presentation.

Were they not closing out their lowest gold hedging position as the gold price increased (or did they just sit and hope it would come back). If they were closing out positions on the way up and booking new ones (a loss mitigation plan) their hedge book to finish with a $1968 average price in Feb, must have had vastly lower forward pricing through last year.. jeesus.

Now the hedge book has moved up to an average of $2092/oz with 74.7kz left.. That's a further loss of $40m sitting there... and if gold keeps rallying, they'll be burning cash holding on..

Why the hell are they not just raising $40m and getting rid of the hedgebook. If gold price keeps on this high (or goes higher), they're going to keep burning cash paying premiums when they could be making good cashflow!

THEREFORE ALL THEY'D BE RAISING NOW WOULD BE
$40m for hedging
& ASK THEIR BANK TO ROLL FORWARD THE DEBT PAYMENT FOR UP TO 2 MONTHS. EVEN PAY THEM AN EXTRA 10% IN PENALTIES.

At $1/share price - $40m = 40m new shares = a 15% dilution. Even at 75c, we'd only be issuing ~50m new shares = a 20% dilution and a 50% discount to entice current shareholders and some new punters (it would also trade strongly afterwards with a TERP of $1.12).. but 30c??? BS.

Their own guidance for the next 3 months is 33-36koz. They'd be able to sell all of this at nearly A$2700/oz ($1100/oz AISC margin) which would generate nearly $40m in CASH!!! On top of the CASH they have in their bank account.

They can use this Cash to cover the debt payment for this month and they will have cash to cover the pre-strip (let's be honest about that - no pre-strip is fully invoiced and paid in 1 to 2 months anyway - it can also be paid from NEXT quarter cash if gold price comes back down), and then NEXT quarter they can generate more CASH to cover the exploration strategy (does the business fail because it does exploration in 2 to 3 months from now with a further 30 to 60 days to pay for the invoices!) and more debt paydown FFS. If anything, close out all the hedging and hedge at $2700/oz just for this quarter to cover the debt payment and pre-strip.

The net result would be a small, much less dilutive capital raise. Giving all new investors a 150% instant profit on re-trading (at their TERP) is a disgrace especially if the company is making good cash flow. In FY21 they say they're going to produce 120-130koz with an AISC of $1300/oz. FFS. What a joke. Is Macquarie doing their hedging and not wanting them to close it out? This strategy stinks of bankers getting together with miners who both want lots of cash raised (brokerage and more exploration) rather than any semblance of actual business common sense.

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Hi QDOS, i simply do not understand what you are saying - "i.e. they've been having to pay $$ out on top of mining costs to cover their hedge book."

How can that be? They have entered into agreements to sell gold at a price in the future. So my understanding is someone paid them to lock in a forward price. Then they have to deliver at that price. It does not mean they have to pay the difference between the agreed price they will take and the spot price at the time. The cost to DCN is the difference between what they had agreed to sell at and the spot price the day they deliver minus whatever they accepted from the buyer to lock in the price when the contract price was struck.

So they don't have to pay to maintain the contract rates, they just have to deliver the gold, which they have been doing and producing that gold at an AISC lower than the futures price struck, although they are missing the spot price premium entirely for the next quarter, they do not have to pay cash on top of the gold sales??

Please clarify if you think that is incorrect.

DCN Price at posting: $1.40 Sentiment: Hold Disclosure: Held
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