Ann: April Production in Line With Plan, page-17

Hi Entropylord,

Be wary of big open cut mines with very low cut off grades. Their profitability can disappear in a flash if prices fall.

The profitability of a mine is a very complex beast. Any of the economic resources that are being compared could be the most profitable from an investment perspective. It depends entirely on the cut off grade and the mine plan. Investing too much to mine and process too much of the resource is a road to ruin.

Hgo is a rare case where too much was invested in too big a plant and too big a pit which was a financial disaster when prices collapsed in 2016.

HGO now presents a great opportunity to buy the assets at a fraction of the their replacement value. Bob is on a mission to half fill the plant in a few months time without mining the lower grade halo ore that are profitable at current prices. He then plans to grow the resources and will be able to step up to operating at 3/4 capacity before stepping up to full capacity. That might involve trucking ore from the northern parts mof the SE tenements.

As your knowledge of mining and geology grows you will come to understand that the resource cut off grade is a function of the net smelter return that ceases to be profitable at the metal price assumption and cost assumptions used.

On going profitability is completely unmanageable in an open pit mine. As the assumptions that drove the cut off grade vary as they inevitably will the mine plan can't be varied to stop mining unprofitable ore which is why mines end up on care and maintenance and in the hands of liquidators when times get tough.

At least in an underground mine it's possible to stop mining unprofitable ore and only mine and process the higher grades that are profitable. Processing plants operate full time with four crews when running full. They can if necessary operate with one crew at quarter capacity mining only very high grades to generate positive cash flow if times get really tough.