phoenix valuation, page-47

I think you're totally wrong there, the bit where you say you could be totally wrong here.

The MD is a metallurgist, so from that you can tell he's a top bloke, all-round great guy and probably a great lover. Just saying. I'm a metallurgist btw. Metallurgists like nothing better than to have a gold plant to play with. They also know that all geologists have trouble differentiating ore from rock. Y'see all exploration geologists think the entire world is mineralised. They blame us for not being able to make money out of every single piece of dirt. This is because they secretly hate us because we crush dirt. They lick dirt, they like dirt, we crush dirt.

So knowing that all exploration geologists are deluded, and that metallurgists like nothing better than having a plant even if it's not working mostly because they are putting mineralised waste through it because an exploration geologist said it was ore and some mining engineer came along who likes to blow stuff up and would if given half a chance, the guy who holds the money, bankers, but usually with a 'w' well they ask us if we're sure we could make money out of the mine so we can pay back the bankers and give them heaps more. You know the definition of a mine? A hole in the ground with a liar standing next to it? The liar is the banker, you can tell cos they're doing SFA, the geologist and the mining engineer are at the bottom of the hole about to blow something up and the met is wondering why there's no gold in the rock he's crushing. Well so companies give the banker a report, called a scoping study, they reckon they're pretty sure they can make money. The banker is like, what's this rubbish? You call this a study? My stone head arts student of a son can put together a better business case than this about how they can sell actual rainbows to hippies to stick on the sides of their vans.

So the miners go away and they ask themselves how they're going to convince the bankers to give them some money.

The geologist, says he'll drill more holes into the same area, to increase the confidence (reserves), and he'll drill a few more outside known areas to increase the resource, so they've got enough dirt to mine. The geologists know that they need to convert resources into reserves before they have really got a mine.

The mining engineer stops blowing things up for five minutes, fires up windows, closes minesweeper which auto runs on the computer and works out how much stuff they get to blow up in order to get the good stuff and none of the waste, or as little as possible. They work out how much dirt they have to move and how much it's gonna cost.

The metallurgist takes the core from the geologist, washes it incase the geologists are dodgy. Always wear a seatbelt in a helicopter, mkay? They crush and grind it, taking various measurements along the way then they try and recover the gold from it. They use this data to develop a process, engineer a plant and work out how much it's gonna cost.

So they all reconvene about 6 months later and write all this up in a study called a prefeasibiliy study and give it back to the banker, who asks them again if they're sure, to which they reply yeah, fairly sure, about 50%. The banker tell them to go away and become surer.

So they all go away and work on a definitive feasibility study, sometimes called a bankable feasibility study. This takes another 6-9 months because the geologists have to do more drilling, the mining engineers have to put that drilling into their models and develop a mine plane for a few years and the metallurgists have to finalise a basis of design, a process flow, and a full set of engineering drawings. And at some point they optimise how big the operation should be to give the best return on investment. The approvals guys get a look in here, to get government and environmental approvals, the enviros and the heritage guys do flora, fauna and heritage surveys.

At this point they have a design throughput, costs for mining, hauling, processing and disposal, estimates for sales volumes and prices and have a pretty good handle on how much money they are going to make over the next few years and how much it's going to cost them to develop it. They give this to the market, or the banker or both and they get the money to go build the mine.

Now this entire process takes about ten years from first hole to operating mine. PXG has done well in having 1.7Moz before it's first birthday, but like a baby at a strip club it's spoilt for choice. It doesn't know which deposit to start digging at first, where to build the mill, how big to build the mill. In order to work all that out and optimise the return on investment, it needs to go out and define better the size, grade, shape and location of the best deposit to start digging at first. Then it needs to look at it's other deposits in the surrounding area and work out how they fit into the location of the mill.

All this work costs money, lots of it. PXG's goal to be self funded enables the drills to keep turning, the studies to happen in the background, the market to rise and fall without affecting it's ability to do business so that it can carry on and deliver to it's shareholders a viable mining business.

Critically PXG needs to get a handle on the extent of it's resources, so it can work out whether it needs to build a 100kozpa mine, or a 400kozpa mine. It needs to know where to build that mine. It needs to define reserves at that deposit, and potentially at satellite deposits. It needs to know how profitable the mine or mines are going to be. It's a long way from having 1.7Moz of resources to having a mine spitting out Xkozpa at a cash cost of $Y/oz.