reporting clarity and guidelines, page-7

Hi FnF,


Thanks for bringing this up.

I took that to mean that this was their go forward plan, not that it would be able to cover of what they have sitting in the balance sheet to date.

Here is why i think that is the case:

If $30 was the case, then this could mean a number of scenario's such as:

1. It could mean that @ a rate of 120,000/annum, it would take 20 years to amortize the cost they already have.
2. It could mean that they ramp up to 150,000/annum for 15 years.

Issue here is that at $30/oz they need to produce 2.56M Oz to be able to amortize the total cost without having to do a very large write off. If we assume like i did before that there is a residual value in their tenements of $5M, then they still need 2.4M Oz of gold produced to amortize that cost and it assumes that their would be zero additional spend on exploration going forward. As at the Jan quarterly, they have reserves of 242,000 Oz and resources of 2.2M Oz, total 2.42M Oz.

Thus, the figures match up almost perfectly in that to achieve $30/oz cost of exploration/development, they need 2.4M Oz (which they have). What is not accounted for however, is that future development costs will form a part of this transaction amount that is amortized as well as future exploration costs associated with transforming resources into reserves. That is, the gold is not going to just find its own way through the mill at zero cost going forward (and i am not talking about milling / production costs - they are seperate)

The $30 to write off the current spend to date simply is impossible to achieve. It is however, possible to achieve moving forward, particularly as the higher grade ore comes through the mill. At some stage, and i presume then they are more profitable, they will need to run some months through with a much higher amortization cost to be able to average down closer to the $30 in the future.

I mentioned a range of $40 to $120 for what they have already spent. It may be closer to $40 than $120 if they can easily and cheaply convert their current resources into actual production figures.

We will be able to track this as the quarters move forward and we see what was needed to be spent for the associated production and in the next annual report when we can see what they have actually expenses to the balance sheet versus ounces produced.

btw, always appreciate your posts and detailed opinions and commentary.