LOL @ Maccas analysis. Just pick a CFPS and NAV ratio out of your shiny posterior to suit your price target, get the punters to buy in at 40c on the thought of a 70c price in 12 months time, and meanwhile shepherd your mates into the 70c lifeboats prior to SS Dacian foundering in the berg-laced straits of bad mojo. Pfffft.
Here's what this boulshaite really means.
Here's the 3 pertinent facts, if you take aside the blame-shifting between miner and contractor and the ball mill blow-out;
98% grade control reconciliation to milled ounces recovered.
85% reconciliation of reserves to milled ounces recovered.
Management has NFI.
This means the ore reserve estimate is over the real grade by 17.6%. This was seen for a while, regardless of whether it's "peripheral stopes" or not. This has only become apparent by finishing the grade control as decline development has allowed drill cuddies to provide angles to test the ore panels.
So, you can slash 17%, if not more, off the value of the Reserve, right now, and going across all their Reserves. This means you will never see those ounces.
Before this downgrade, costs were $1100/oZ (for argument's sakes) across 150K Oz per annum, or $165M p.a. flat cost structure. They will, mill failures and contractor facerolls eliminated, be $165M p.a. regardless of your ounces produced.
If you slash your production of ounces to 85% of Reserve, and keep costs the same, you split $165M in costs across 125K ounces, your cost structure is now $1294/Oz. Let's say $1300/Oz. That's locked in life-of-mine. They provided a cost estimate for the forward 12 months up to $1,450/Oz which includes this disastrous quarter, but even without this quarter, they're now locked in for $1,300/Oz costs.
It's not a company killer. But it certainly cuts the profit margin substantially. Macquarie could do a bit better in actually, you know, understanding where the error has come from (sloppy, erroneous JORCing; poor drill density going in to the Reserve calculation pre-mining; AKA too much risk and not enough controls). It's a Competent Person issue, a methodological issue at the front end.
The funny thing is...DCN is not alone. MCR lost 15,000 of 1650K ounces - 10-15%. GCY, though I haven't actually looked, I am going to assume the same is happening there. It's a problem with the resource models, nothing more, nothing less. The fact this reconciliation has come back so poorly in concert with contractor "issues" and mill motor failures is bad luck, but neither of those factors will ever get the LOM ounces back, or recover the $200/Oz in marginal costs now seemingly locked in for life.
Should heads roll? I dunno. It cost the guy at MCR his job.
Expand
