A follow up in a new thread on your earlier post regarding the discrepancy between cash at hand/cash costs and current liabilities and payables gap (I will limit my reply to this aspect in the belief this is the key to what you said in your post).
Think what you were implying in your post is that based on the December 2011 six monthly consolidated report, the cash costs (which includes production costs) is limiting the amount of profit (cash on hand) generated for FML/CRE group to meet its current liabilities (payables and financial).
Having done some number crunching on these aspects using both the CRE December 2011 six monthly report and the December 2011 FML Group six monthly consolidated report (which includes the auditors permitted CRE attributed figures), I believe your implication based on the reports is correct (think the auditors qualifying statement on the CRE stand alone accounts would support your assertion in any case).
My figures show that the largest increase in liabilities came in the accounts payable where FML obviously had an increase with the situation not helped by the transfer of the CRE attributed component (bit hard to derive the exact figure due to attributable’s, but would say the increase is around the $20m mark – a nasty jump).
Whether CRE and the FML Group had the ability to meet the forward cyclic accounts payable payments due on the Group $41.244m and the stand alone CRE $16.91m was a big question, so I turned to the appropriate auditors comment section to see if they had expressed any concerns, and discovered none were reflected or shown in the Group report., however in the CRE report, concerns had been expressed in terms of the overall auditors qualifying statement regarding the need for FML to provide financial support as required to keep the company operating as a going concern.
Taking into account that was December 2011 and this is May 2012, asked myself the question has anything changed?
If you look at the March 2012 quarterlies, CRE has probably marked time with its accounts payable, choosing to spend whatever income it made on development and some additional administration matter (around $3.9m)., with the FML component of the FML Group marking time, or maybe slightly increasing its accounts payable due to increased expenditure on development and production costs seeing it ended the period in a reduction in cash held by $1.297m.
Hard to be definitive on what has happened to current liabilities as the quarterly reports do not contain the information required, so you have to do a bit of guesstimate.
Do not think there is any denying that at the moment the FML Group is pushing the fiscal envelope thanks to their development and exploration activities – they have stated that in the current quarter now running they will be reducing their development costs by just under $8m, along with bringing production costs at Coolgardie down to around the December 2011 levels (say an extra $2.5m in revenue based on the same tonnages and grades).
Even if the FML Group end up with a positive cash on hand result in June 2012, and based on what other mining companies do, I cannot see them reducing accounts payable to anything less than a comfort zone, where they can make payments to suppliers strictly in accord with the terms of trade so they do not raise the auditors wrath come reporting time.
I have not heard of any supplier to FML not being paid in accord with the terms of trade, although probably like most shareholders there is little chance of me hearing of such directly (last physical contact I had with a supplier to FML was in November 2011 and he certainly made no comment about not being paid, or being paid on time – matter of fact he was very happy doing business with FML).
CRE as a stand alone company operates under a strict payables regime due to its special contractural arrangements with its suppliers and bankers, however do not see this changing for some time even when they become a private company.
Also would like to add, that if you said to me do you think this is one of the reasons why the FML share price is where it is, I would say yes – the market does not like companies that push the fiscal envelope.
Sorry about the long winded reply indicating that I agree with your assertion as I read it, however if I had kept the reply to a couple of lines, there would be quite a few people wondering why I agreed with you – hopefully if they read this they can see my rationale.
Think you also deserve a tick up for making an interesting and challenging assertion – mind you I would also like to theoretically apply a tick down for the amount of time I had to spend looking into this.
Will certainly be using the calculator on the June report.
Cheers, kentwang
FML Price at posting:
3.8¢ Sentiment: Hold Disclosure: Held
(20min delay)