Hi all,
For those that want a balance unbiased view I have prepared some figures based on the Q1 report together with the conference call info. Here is the cost breakdown (per pound) from Conference call.
$4.50 cash cost (reiterated between 4.50 and 5 however I have used lower end)
$.50 royalty (quarterly says .35 however AR says some tax holidays no longer apply. Will go with conference call information)
$.80 Capex – This would be in line with the $28M-35M in AR. They believe they can reduce this.
$.40 G&A
$.30 interest – This allows for interest payable and capitalised and added to total owed to noteholders. The interest is incurred during this year so my opinion (and it appears others) should be allocated to the time incurred.
Total all in cost - $6.50 break even.
Curent Ni price - $6.35 They are currently not profitable. Reason for cash increase is below.
Current Real price 3.02 – average Q1 price was $2.86 however cash cost Q1 was US$4.88 so this has been allowed for.
Please note that the reason for the cash increase last quarter was for two reasons;
- They only incurred US2M capex expense. Recent call highlights this was a one off and average US7M. This has been stated by the company in the call.
- Interest is capitalised so not realised until Con note reliquished or converted to MBN shares (expires 2019). I got hassled for this in a previous post but the AR also says that the noteholder can convert anytime after the 3rd anniversary which is roughly 2 years away. The company can also request conversion between year 3-4. The SP has been set already at US.1688 per share so Tomboy was wrong saying they will allow for this with higher share price. (I would have thought the self What I have done in the above analysis is allowed for the dilution by allocating a cost per pound for the interest payable each year. The Con note value would have to be paid for by issuing a new note or out of cash holding. If you don’t allow for this then you are going to get hit with major dilution further down the track if things don’t go to plan. If the company does become majorly profitable with a higher Ni price expect the bond holders to convert early as interest still payble in cash and if dividends are being paid they will want to double dip no doubt.
Guidance is currently 1375t – 1500t per month.
Companies guidance on Ni price ;
US$6.55 – now till october
US$7.43 – October till January
US$8.77 – Jan to April 2016.
At $7.43 from October profit looks like this per month;
US$3,025,000 - $3,300,000 using (1375t – 1500t) Annualised at that price ($36,300,000-$39,600,000)
So if they reduce capex next two quarters like they did Q1 (they will need to pay for it later down the line so it will be incurred) the cash balance
from mining looks like;
Current cash holding – US$25M
Saved Capex - US$15M
Interest capitalised (paid for later but incurred now) US$11M
Using upper tonnage (I believe it will be around that) US$10M
US.05cent margin from April to September US1M (annual US2M)
Total - US$62M
If the price was to jump to US8.77 in October they would make US$7,491,000 per month or US$22,473,000 for the quarter
New total US$73.5M
Remember these are using company estimates so I don’t see where US100M comes from unless they get higher Ni prices earlier than October.
As the current Ni price is very close to break even this could run very hard from US$6.75 per pound IMO but could run earlier on anticipated Ni increase as well.
Other factors that could vary the result;
Real devaluation – hedging the real price could actualy be a disadvantage later down the line as some costs are in US dollars (interest, machinery parts, Oil and bi-product offset (copper and Cobalt)) Commodity prices in general have an inverse relationship with the US dollar (Nickel has other fundamental forces that could make it diverge from this as most would know).
Increase from 1.6Mt to 1.8Mt production. This could reduce the all in cash cost further and move the Ni production to upper guidance and they said in conference call they are aiming to do this. Grade wasn’t a focus for them so I doubt that will increase but it could and has been left out as a variable for now.
Recovery (current 54%) could improve further too with highest grade since Q1 2012 60% but average 53%. Looks like it could increase again and a further increase to say 56% adds an extra 3.5% recovery of Ni.
Reduced capex was mentioned in the conference call. Every US .05c reduction adds US$2M to the bottom line.
A 1.8Mt per quarter with grade staying the same and recovery increasing to 56% makes 4435T per quarter. Needs to get to 57% recovery to get over upper guidance. 60% recovery @ 1.8Mt makes 4752T per quarter
2016 could become very profitable if they can keep costs the same but the Ni price increase to say conversatively US$8.77 for the whole of 2016 calendar year.
US2.77margin x 19,008T x 2200 = $115,834,752 profit.
So just for the record Tomboy – unless my figures are wrong which please feel free to point it out you were wrong on multiple fronts. I also have my suspicions about you coming to HC claiming to be the MBN voice of HC but only being online since 2015 from what I can see. Could be wrong about your HC tenure though. I would be cautious of his endless ramping and self proliferation.
Also your call for a dividend this year is way to premature in my opinion. Cant think those bondholders would be all too happy with a divi paid before they can convert to MBN shares to double dip but I could be wrong.
Disclosure - LT buy (not now), not held due to thinking US dollar index about to rally and want to see if Ni price reacts with it.
