December was a better month, but in the scheme of things still a long way from viable deposit and even further from preservation of any shareholder equity. I made an error in previous Sep Qtr HMC production, now corrected in the table below (Mar-Dec Qtrs 26kt, 30kt and 27kt HMC prod).
If Dec's A$650/t HMC translates over the Qtr, then STA is receiving ~$18M revenue against estimated $40M cashflow out (C1 costs running at ~$33M Qtr, but excludes Royalties and Sustaining Capex and non-Coburn corp overheads. Sep Qtr $48M cvash out excluding Fungoni). Actual revenue will be lower because last shipment in Mar'24 Qtr, so just matching revenue to actual production more instructive).
LOM avg HMC ~ 57kt/Qtr or 19kt/mth, running ~50% design over Dec Qtr, but 66% over Dec Month. What's required to reach a positive operating cashflow? If we assume they can get better prices for the HMC averaging A$800/t over this Qtr and they can hit 15kt HMC/mnth, then they break-even before debt int and principal if Qtrly costs settle at $35M... Over time they will need to produce and sell premium dry plant products to lift revenue while obviously constrained to some lower steady state HMC production (unless someone funds more DMUs and mine/plant expansion as planned), but when that might be is unknown.
The update mentioned that C1 costs include commissioning and temporary rectification costs, so Dec C1 $10.5M (AISC ~$11.5M) is higher then LOM expectations. I hope so, but inflation only goes in one direction and the current operation, planned tailings rehandling, lack of any overburden removal or other development/rehab activities say Dec C1 costs are flattered by sitting in the thickest part of the deposit with almost no DMU moves, rehab etc. Below is a Sentinel picture of Coburn between 26 Sep'23 (LHS) and 14 Jan showing just how little work is happening outside sitting in that one thick East Dune pit. No rehab, no new pit preparation west or south, no tailings expansion yet, no airstrip (when I zoom out).
Zooming in, less some incremental tailings fill in the still water mounded and unrehabbed previous mine pits, over 4 months the DMU's have sat in and expanded the deep east dune pit as shown by white square for scale (ie expanded a little west and south over 4 months). Coburn LOM plan has a lot more overburden in other parts of the deposit and rehab etc that is not captured by Dec's C1 cash costs. LOM Qtrly cash out will be >$30m imo, but only time will tell.
The Update excluded vital information of sand tonnes processed through the WCP and the grade. Lifting HMC production 19% from 10,600t Nov to 12,600t Dec was due to both grade and throughput STA claim, though we don;t know how much sand production actually improved? The Section B-B' from recent grade control drilling demonstrated the high grade strand at the base of thick East Dune, with grades over 3% THM. Obviously a lot of 1% THM sand was also mined in Dec Qtr, but given satelite pcitures seem to show the pit reaching the bottom after many months mining, it's fair to say that grade may have represented nearly all of that 19% lift in HMC Nov to Dec. Avg 1% THM in Nov up to 1.2% THM in Dec would do it...
Looking at the situation realistically, neither the Dec Qtr or even the Dec month represent any great leap forward. Next pit south in the East Dune will be back into low grade upper dune ore, and the mine cannot sit in the thickest, sweetest part of the orebody doing no other mining activities for ever. First hurdle is to demonstrate much higher sand mining rates month-on-month to give Coburn a chance of making bank. Then HMC and zircon quality needs to find a buyer prepared to pay market prices not an 'iron stained discount' so higher production is leveraged into higher prices. All the while knowing that other mining costs will eventually rise to replace temporary rectification/commissioning costs.
My premise is the ongoing mine plan delay and trading extension is due Coburn still being unable to demonstrate a confident path to SteadyState cash generating operations. Until there is confidence this is probable, shareholders will not tip in more equity and creditors will buy more time to see how they want to play it. If brokers or shareholders won;t buy time, eventually creditors will put it into administration and buy time themselves with the upside being the transfer of all shareholder equity (such as it stands) to creditors in return.
Every month STA cannot reach positive margins and demonstrate a clear path to long term profitability is a month the administration noose closes tighter. Even if STA demonstrate such, why wouldn't creditors seek to transfer shareholder equity into their own pockets in return for debt restructuring and the risk they may never get all their debt/int paid back? NAIF might be a charity, but the USD bond holders certainly are not. A$100m demand from the bond holders given STA has defaulted on the debt would be in addition to whatever equity needs to be raised to buy time for Coburn to get into positive steady state. Time is not on our side, and every month things stay the same is exponentially worse imo, which is explains my jaundice about our situation compared to those smoking the hopium pipe...
On the upside, outside of water drainage and thus tailings problems, and possibly permanent zircon quality discount, all the equipment and plant issues can turn on a dime and come good over a single month as problems/solutions are bedded down. Get WCP to nameplate, provides enough material to sort out the MSP, and then a mine plan is simple maths with the usual quantifiable risks. Being stuck <30kt/mnth HMC will not cut it obviously...
GLTAH
STA Price at posting:
9.5¢ Sentiment: None Disclosure: Held
(20min delay)