Ann: Corporate and Operations Update, page-202

Hi Xjquan, production costs this Qtr $36m , next quarter forecast $42m.

This doesn't make sense to me, either cost per tonne is increasing or they are planning on producing another record Qtr. On either scenario the question is why.

Given our current cashflow crisis (I don't think crisis is an exaggeration) I really don't see the point of increasing production if we are unable to sell it, I would have thought they would have been looking to reduce production and utilising the stock piles to make sales.

Whilst a reduction in production volume would likely increase unit cost it would be benefit in short term cash flow. I have previously indicated a thought they may need to place operations (excl shipping) on C&M and whilst ,as you have pointed out , there may be some costs to this it may be a preferable option than just continuing to produce to add to our stockpiles. From a risk management perspective it may be a safer option than hoping we can sell all of our production plus some of our stockpile to generate some cash. If we produce it and then can't sell it we will be in an even dire situation than currently.

But another option may be to reduce production, say by 50%. This would avoid/reduce those C&M costs and re-start costs /risks but help reduce our total operating costs with sales being met from production and stockpile. Not sure on how many shifts the plant is currently run on, but if it's two then perhaps they should consider reducing to one shift until stockpiles are utilised and cashflow situation improves.

I was surprised that there was no mention in the strategic review of looking at these sort of options, is that because they aren't going to consider it or just they wanted to present a more positive picture (eg look at other sales options etc, though one would question why they need a strategic review for this).

Anyway, would appreciate your thoughts as to me they need to do something quite drastic just to get us thru the next 3 to 6 months and cashflow is absolutely critical, even at expense of profitability. Can they risk just keeping producing full steam ahead?


All in my humble opinion as always.