What really interests me about this is that they are running mining optimisation and tradeoff scenarios....whilst mining 40,000 tonnes a day.
The usual way this goes (the way the Suits do it) is to do all these tradeoff and optimisation studies before you start mining.
Now, i'm not saying that this is a bad idea. it at least shows willing and a bit of flexibility as management adjusts to circumstances. But this all comes at a cost, and that includes redesigning the pits, rescheduling and re-planning excavator and truck numbers, which also impacts on staffing levels, which flows through to inventories, maintenance schedules, dewatering, accommodation needs (since everyone lives in Curry apparently), shipment schedules.
So, yes, they will need to amend their mining license to run at a faster rate.
Economically, digging more or faster at the front end means more capital up front. So if the optimisation and tradeoff studies come back and say this is a good idea, the company will need to adjust it's cash flow model and capital expense rates at the front end, which will require...you guessed it...a solid whack of cash to pay for the digging.
Note that they are digging 1.5 times as much as they really need to. Which is spending 1.5 times as much as they need to.
The plant has spare capacity. Which means they spent more on the plant than they apparently really needed to.
It will be interesting to see whether idle capacity (carrying idle capital expenses) plus extra capital on extra digging to make rock that sits around for years without paying for itself (ie; a carried loss) does actually equate to a better result overall, given the delays in commissioning the crushing circuit.
To my mind, if your crusher is delayed, you'd slow down the cash spend on digging, not find ways to speed it all up.
Maybe this is all coming as a consequence of the oddity that CDU isn't in hock to the banks. They are sinking capital into the digging and the studies and the amendments to the mining license because there isn't a direct and clear financial cost. But in terms of investors, every dollar which goes into the ground requires a rate of return. If you stuff a buck in the ground with 8% p.a. desired rate of return, and you leave it there for six years, you want that dollar to have an NPV of at least $1.75 to account for six years at 8% compounding.
If you sink $500K a day into the ground now, and the ore you dig isn't getting processed and returning a dollar for six years, you'd want to make sure that you are going to pull $800K of copper out for each day's digging. If not, what is happening is that your average project NPV is being destroyed, and so are your average returns (inflation adjusted).
To me, looks like CDU is just burning money and destroying shareholder value - and when that happens, we know what happens to the share price.
CDU Price at posting:
$1.84 Sentiment: Sell Disclosure: Not Held
