I have been pondering your calculations above and I feel your example above using a CAIC of $2,200 if off the mark for SPR, ie way too conservative. I illustrate my views using one stock, WGX which has a few UG mines and found the following:
For the 6 months to December 2023 they produced 122,000 Oz at an ASIC of $2,085 at a grade of 2.4g/t. The ASIC would have been as follows with higher grade gold head grade (I have not adjusted for recoveries as they are similar to SPR at 89% - ie my figures below are a bit conservative):
- at 3 g/t ASIC falls to $1,668 a reduction of 20%
- at 4g/t ASIC falls to $1.251 a reduction of 40%
- at 5g/t ASIC falls to $1,001 a reduction of 52%
- at 6g/t ASIC falls to $834 or a reduction of 60%
- at 7g/t ASIC falls to $715 or a reduction of 66%
While I always like conservatism, I do not support being way too conservative as can be misleading.
The average grade in your example is 4.6 g/t (92% higher than actual WGX grade) which applied to WGX would result in an ASIC of $1,088 which is almost 50% lower than the actual ASIC WGX achieved in the last 6 months ie they would have produced 234,000 Oz instead of 122,000 Oz (yep that's right nearly double).
With such a big difference in grade to current UG miners using WGX as an example, one cannot use them as an example unless an adjustment is made to ASIC for major differences in grade.
Also note BGL with a grade of 6 g/t, had a DFS ASIC of between $1,000 and $1,100 which is far more comparable for SPR potential ASIC. It is higher than WGX results above for 6g/t but a lot closer than using WGX as an example. I think BGL ASIC will be between $1,200 and $1,300 when they announce guidance mid-year due to impact of inflation (ie circa 20% to 25% higher than DFS numbers). Their are reasons why SPR will have a lower ASIC than BGL, due mainly to the nature of the NN ore body being better than BGL's orebody but lets ignore that.
Using my results your CAIC is potentially over stated by as much as $500 to $1,000. Taking $500 or a CAIC of $1,700 adds 50% to the annual cash generation or $320m and using $1,000 or an CAIC of $1,200 increases the figures to 95% higher cash generation or $420m pa. which are starkly higher figures. I prefer the CAIC of $1,700 or even $1,500 as I feel the $1,200 is too low (a CAIC of $1,500 generates a cash flow of $360m or 67% higher than $215m). The CAIC of $1,500 roughly corresponds to my estimate of an ASIC of $1,300 I used working back from production costs in GCY's last 12 months of production adjusting for inflation and adding my own conservatism)- see an earlier post of mine.
My figures illustrate what a gold mine SPR has in NN, etc (excuse the pun).
Please note I consider my estimates of ASIC as speculative but sensible but I do take comfort in arriving at ASIC estimates from 2 very different approaches, which while speculative, produce similar or comparable views.
Other examples could be used which may result in different results and views ie higher (oe even lower) estimates of ASIC and CAIC.
If you did adjust for grade then I will make my post disappear!
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