NORTHERN STAR RESOURCES LTD (ASX:NST) - Ann: Quarterly Activities Report - March 2015, page-34 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by mainholm ↑

Hi decrisper.

You may or may not know what makes up AISC? This form of accounting is using non-GAAP metrics mandated by the World Gold Council. AISC consists of both actual cash costs and some non cash expenses (depreciation & amortisation) plus some non cash liabilities (i.e. mine rehab and reclamation, which is an unusual metric relative to cash recording).

GAAP stands for Generally Accepted Accounting Standards and are the accounting principles that are applied to accounting policies applicable in the International Financial Reporting Standards (IFRS). The IFRS provide the reporting standards for the Financial Statements amongst other accounting policies. The financial statements consist of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

The Cash Flow Statement determines the Free Cash Flow. Only 'cash' transactions are included in the Cash Flow Statement. That means expenses like depreciation, amortisation, or losses like impairment, or liabilities like provisions (i.e. mine rehab/reclamation and employee entitlements) are not included in the Cash Flow Statement. Only actual 'cash' transactions are included in the Cash Flow Statement.

Mine rehabilitation is not an actual 'cash' transaction until the cost is paid. It is a provision recorded on the Balance Sheet as a liability to be paid sometime in the future. It does not get recorded in the Income Statement until it is paid at that future time. That means it does not impact earnings or operating cash flow during the current period.

Free Cash Flow is most simplistically calculated as Operating Cash Flow minus Capital Expenditures. Capital Expenditure for producing miners is normally the PPE and Development costs in the Investment Cash Flow section of the Cash Flow Statement.

Back to AISC. At best, they are a nominal guide for measuring the cost of producing an oz of gold at the mine site plus that mine's sustaining capital expenditures and a share of the Corporate overheads. The World Gold Council has introduced them as an aim to have better transparency amongst gold producers. The World Gold Council admits that mine rehabilation costs are only a notional or representative amount that do not reflect annual cash flows.

All In Costs are the AISC plus other non sustaining expenditures not directly related to the specific mining operations. The AIC is also a non-GAAP financial metric because it does not include other expenses, losses, or costs like Income Tax, Finance Charges, Interest Paid, M&A costs, and other items needed to normalise earnings like impairments.

Wise investors should be mindful of these facts when doing their fundamental analysis.

IMHO, the key to Plutonic is understanding what the MD is saying about their strategy of "building a new mine". Joining the dots from previous statements he has made about the Plutonic acquisition it appears to me that he always knew it would cost some extra non sustaining development and exploration expenditures to realise new potential in that mine. The MD has mentioned several times that the replacement value of the above ground assets is about $250m. That is a massive head start for a company that is going to be "building a new mine". Additionally, the MD has talked about the strategic location of Plutonic. I myself have posted on HC several times about this important strategic location. So personally, the Hermes acquisition did not surprise me at all. In fact, it was easy to anticipate that type of play when looking at the strategic location.

Once Plutonic develops these 3 or 4 new ore bodies mentioned by the MD today then it isn't hard to see that the AISC will drop significantly. That alone will make Plutonic profitable. Extra ore feeding from surrounding tenements or projects like Hermes is just icing on the cake. It wouldn't surprise me at all if the Plutonic acquisition was also a stepping stone to the big prize in Kalgoorlie. IMHO and a guess at joining the dots, this is all part and parcel to very good strategic planning by NST. Then again, I could be wrong so DYOR blah blah and all that jazz.

Cheers

Expand

Just to clarify regarding the mine rehabilitation. When the provision liability is raised the amount provided for is recorded at this time as an expense in the Income Statement. When the rehabilitation is paid the money is withdrawn from the bank and charged against the provision. ie no Income Statement impact. The only Income Statement entry at this time would be to account for any under or over provision made over the life of the mine.

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Price($)	Vol.	No.
15.980	38664	3
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16.000	68399	7
16.010	16852	4
16.020	85466	2

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(20min delay)
Last $15.97		Change -0.260(1.60%)		Mkt cap ! $18.36B

Open	High	Low	Value	Volume
$15.96	$16.05	$15.85	$57.91M	3.630M

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