SBM is different because they had Gwalia with one of the most profitable margins in Aus that was able to finance the losses from Simberi and Gold Ridge which had negative margins and would fail your reserves test. Both were turned around to positive margins, although Goldridge was a failure of epic proportions after a flood event. Simberi is now cash positive, it took a lot of development $ to improve, slowly paying back costs. The security for me with SBM was the fact it had one mine making lots of money to finance the others so no liquidity worry, even though most posters at the time were saying dump the other assets and pay of the debt first.
The reserves were defined economically the life of mine, including the removal of all waste as well as the ore. The waste has not gone up, just moved earlier and with a lack of the main ore to fill the mill and the complete failure of the underground plan. With the ore remaining and only a small fraction of the waste left, according to the mine plan it should make up for the previous costs... I think though given the last quarterly report of grades and ore reserves in the open pit mining plan to June 18 there is 73koz ore there at grades enough to make money if done correctly.
However as you say they have not done anything to give us much confidence in their ability to carry through anything could happen such as:
a) Incorrect reporting of current state or reserve definition.
b) Mine plan fails and they find more waste required to be removed
c) Start prestripping the next pit
d) Something stupid
e) Something contrary to expectations and they do what they say they can do ...
Other comments ... I am no longer so sure about my "25koz" upper limit on production since it was pointed out on another thread this is more than they forecast, and limited by the ore grade and mill production.
The financing deal is interesting, can anyone with a legal bent tell from the wording if the legal diligence required is only on BLK side, given they have the term sheet (is that just the terms of an offer, like when I get a loan offer from the bank and it is up to me to accept?)
Someone asked what has the financier seen that we have not been shown? I think they would have no figures more significant than released to the market, maybe a bit more up to date, but some more evidence that what they have been told is true, visiting the site, talking with management, and the guys on the ground digging. Something to help with the risk.
Terms of the deal ... do we get to know? Nothing about interest rate or payments, it can not be too arduous, or they would have taken the other option of dilution. It was quite a long timeframe, incorporating the fabled 200koz plan! however given the rate of return on that could they finance it with a higher rate of interest?
So we are left with ... the financing, is it safe, is it secret?
BLK Price at posting:
15.5¢ Sentiment: Hold Disclosure: Held
