Well Fishinnick people get paid a lot of money and spend a lot of time trying to answer questions like yours and it is still not an easy task even when you have all of the information, not just some of it as I have. So the short answer for people who do not want to read the reasoning is that I think that Mt Magnet will produce profits of between $0.25c/share and up to $0.81c/share over the next five to seven years with only a very small addition to reserves and throughput at the mill. The chance of them finding more gold is about 110% - IMO.
So the two questions you want answered in the long form with some of my calculation
1.What is the likelihood of RMS drilling at Mt Magnet increasing mineable reserves and resources at Mt Magnet and 2.What is the value of the project to the company.
My response to the second question first. If you accept Harmony figures and there is not one zac more economic gold found than the 474,000 oz in the Saturn and Mars pits and it takes the full $40m to get the mine operating and the gold price average is exactly what Harmony planned for of $1150 and it costs $825 an oz to produce those 474,000 oz over 5 years if you include the purchase price and start up costs and deduct them from net cash flow over the five years then this operation produces about $78.75mil over 5 years free cash and it repays all the capital and start up costs to the company putting $90mil back into cash reserves. I am assuming no borrowings and I get a Net Present Value (discount rate of 6.5%) of about $0.19c per share based only on those declared reserves and the Harmony figures . (I do not want to argue with anyone about discount rates do your own damn numbers, its all paid for with cash anyway).
But look, improve any parameter and the numbers go topsy. In the release of July 8 the company noted that Harmony had already done the work to plan optimisation of other existing pits on the site to add possibly another 200,000 oz at the same rates as the reserve is calculated. If you add that in and assume 674,000 oz mineable reserve and increase the mine life to 7 years it comes out to 25c a share and without having started a drill. If the grade at mill improves from 2gpt to 2.5gpt (92% recovery) and the mine produces for just $800/oz, 125,000oz per annum (at POG 1150 oz) it becomes worth 68c a share over 7 years but for that they have to mine more than the existing reserves - you need about another 180,000oz in years 6 and 7.
So that game of numbers can go on as long as you like. But what they are doing now is seeking to expand mineable reserves so they can make a decision about restarting at 1.7mtpa or if they should upgrade the mill now to a higher throughput. Either way, IMO, it was a great buy.
The second question about finding more gold, well basically they would have to have their drills pointing to the sky not to find more gold.
This is a gold rich province that has produced 5.6 million ozs, the early main mine, Hill 50 was mined to 1500mt depth, so lots of reason to expect deep extensions. From under some of the existing pits there are lots of long cores with high grade gold already assayed that Harmony handed over with the keys to the gate. I reproduce a table below from RMS announcement of August 13.
And these drill results are from beneath existing pits, not even considering what might show up with some exploration outside the bounds of those areas already being mined. The Mt Magnet mine site around Hill 50 is about 5sq km, RMS bought a total of 225sq km of tenements along with the 1.7mtpa mill, mining camp etc etc etc. You see what RMS bought was a gold mine, not just a prospect of one.. it could start milling ore in 4 to 6 months if they decided to commit the money today to restart at 1.7mtpa. It has proven mineable reserves (including if you look at the tables things like 13,000 oz actually in stockpiles at 1gpt to start the mill on) and all of the results listed below are not included in those reserve calculations.
So you want some (relatively low risk) blue sky - if the price of gold were to average 1150/oz over the next seven years my 2.5gpt mill feed scenario at 125,000 oz per year production, and with costs reduced to just $750/oz gives Mt Magnet alone an NPV of $0.81c a share for RMS shareholders. I am still confident that RMS is still way under valued compared to a hell of a lot of gold companies on this market.
And there is no reason why this area will not produce gold at least at that rate of 125koz pa for a great deal more than 7 years they already have 3.3mil oz in resource and if they convert half of that to reserve it doubles the top end NPV to possibly $1.60 a year. If they add a million oz to resouces and convert half of that so they are up to 2mil oz mineable reserves over 12 years its heading past $2 per share so DYOR, this is my opinion only (but those Mt Magnet drill results below are real). It was a great buy.
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