Tictoc, great post! Informative, well written and I'm sure the effort is appreciated by all. No need to invite me to critique, I'm one of those opinionated types going to make comments regardless .But seeming you have and you raise so many interesting points, if you don;t mind I'm going to reply in direct commentary to your post copied out below.
Must say as a newby share market investor and a brand new “value” motivated CDV investor with a 5 year plan in mind I have come away with a rose coloured glasses point of view after attending todays CDV AGM in Perth. Word of caution for a cynical old salt, take management's sales pitch and enthusiasm with a pinch of salt. Every CEO is excited by their project, convinced of the upside, disappointed that the market has is not valuing it properly and has excuses for why the share price hasn't performed. Part and parcel of the job.
Not sure my unsophisticated points of view are worth much but I thought I would put them forward here as my attempt to contribute to HC which I enjoy visitin
So quick disclaimer regarding my position. After reading the nervous posts here on HC about the FS for CDV I was a bit worried about having jumped in at $0.40 on the opening of trading after the release of the FS. Newby mistake I suppose. If I had waited I could have bought in several cents cheaper. Live and learn.t I relaxed after reading2ic’s sophisticated calm analysis and carried his/her points of view into the meeting. Wouldn't be worried about a couple of cents, if the value proposition of a junior resource stock is so modest a 5% change in your entry price matters then better off never entering int hefirst place. 2ic doesn't always get it right but anyone that says a half billion lift in opex from the PFS wasn;t going to receive a negative reaction after Archie spent 4 months talking up the opex savings expected with Aachen is either a fool disingenuous. $25/Oz would have been fine, even $75/Oz would have been reasonable maybe but $125/Oz was simply a long way in the wrong direction.
First a bit of a cheeky point. I had a chance to chat with Arche and he was friendly, approachable andvery supportive of we small investor types. But, here’s the cheeky point, he does look like he has been in a good paddock..lol. Could not imagine him in hobnail boots in the pit when it gets going. But looks can be deceiving…lol…Sorry Arch
The concerns raised on HC about the AISC differential between the PFS and FS were neatly explained as the difference between the strip ration of a 4.7 million sized pit and the new 5.1 million sized pit that was utilised in their attempt to extract as much as they can from the 7 million ounce resource. This is where Archie has lost and continues to lose credibility. Hiding the truth by saying nothing is one thing, factual untruths after the spot light has been shined onto reality is a poor look imo. Archie wants to be careful walking the line between salesman and bullsh!t artist, because many funds will say once bitten, twice shy. If you are untruthful about one thing then how can we believe anything?
I dug deeper after the DSF release and found the following in the Namdini Resreve Update Addendun Apr 18th 2019.
A large part of the increase waste tonnage and strip was caused by the need to redesign the pit, not the pit wall slope and certainly not in chasing more ore. The updated reserve had more tonnes and gold bu at a very slightly lower grade. If we assume despite this lowering of grade that the extra 9Mt of ore in the updated reserve was 1.2g/t , or 1g/t gold production with 83% recovery. At $1300/Oz gold each gram is worth $42, or $40 after 5% royalty. We know from the DFS that it costs ~$20/t to mine, truck to the plant and process ore (including G&A but excluding sustaining capex, rehab and other overheads), a figure which excludes the $5/t waste movement. In round terms then every extra tonne of ore in the new reserve update can afford to carry 4 tonnes of waste (4:1 strip ratio) at no profit break even. Of course the new reserve only brought in profitable ore so the very highest possible strip that the 9Mt of extra ore could carry is 3:1, leaving a skinny $5/t gross profit before other overheads.
In other words 27Mt of waste is the maximum amount that the additional 9Mt of ore could profitably carry. Of the extra 82Mt of waste that the new Reserve brought in 55Mt was therefore simply a pit re-design opex blow-out. 55Mt at the DFS $5/t is an additional $275M over the LOM, or $65/Oz added to the AISC of a 4.2M Oz Reserve. Just over half of the AISC increase that upset the market was driven by waste increase totally unrelated to bringing in more resources into the mining Reserve. That opex increase was required simply to maintain access to the PFS ore reserve after the geothechnical engineers had their say post PFS. The truth is that for geotechnical requirements the strip ratio was underestimated during the PFS and very substantial extra opex costs would need to be booked against that extra waste in the DFS not paid for with any extra ore or gold production. CDV knew this back in April but buried the facts deep letting the market (retail mug punters) believe that the extra waste was associated with generating an extra 9Mt of ore. Also taken from the Reserve Update Addendun front summary page.
"The updated PFS economic evaluation, for the 9.5 Mtpa option, has not changed significantly and the change is not material and therefore the PFS economic
figures are still relevant and within the accuracy (+30 % / ‐20 %) of the 9.5 Mtpa option of the PFS dated 18 September 2019. "
Now it's all out in the open and retail goes back with a fine tooth comb to see where the opex cost increase came from, to keep sprouting the line that "difference between the strip ration of a 4.7 million sized pit and the new 5.1 million sized pit that was utilised in their attempt to extract as much as they can from the 7 million ounce resource" is not exactly truthful. The truth is that an extra $275M of waste had to be moved because the geotech guys required a new, higher strip pit design with extra berms and haulage roads!
Along with the mining infrastructure contractors new assessment/quote on the bigger pit there was an updated or new cost/quote increase on the setting up and supply of the electricity supply. I did not realise that power supply accounts for 30% of the OPEX or is that AISC…hmmm, more reading required…lol.
It was explained that the FS AISC for the first 7 or 8 years is in the lowest quartile which suits my investment plan but the bigger pit, new electricity supply cost and the last 3 closing years of 170,000 ounce PA really puts a drag on the overall LOM AISC figure, not sure why they didn’t offer an investors 3 , 6 , 9 , 12 and 15 year progressive AISC presentation. Maybe the AISC figure has to legally offer full LOM figures, not sure about that. I was thinking about making another post on industry AISC in light of this very fact, that costs vary with depth and gold production profile over time yet LOM costs are used to quantify a project's place in the cost curve. That is, any cost curve I have ever seen is a snap shot in time, yet all mines tend to start off with cheap Oz and move towards more expensive Oz with depth and increasing strip. Namdini will start off in the lowest qurtile for around 4 years, move into second quartile and end up in the third quartile at around $1200/Oz at the end. The math of $895 LOM average but the first 4 years at $600 proves it so. I have shown that 50% of the AISC increase was waste driven, the rest was a mix of all sorts, and owners cost being aa bigger culprit than power imo.
Take this March 2018 West African gold mine AISC curce from quarterly reports. The first quartile mines are all 1-2 year old mines pumpingout cheap ounces where as the fourth quarter cost mines are at the tail end of their lives. To some extent Namdini's LOM AISC plot something very close to the industry cost curve snap shot in time. This has a number of implications, one of which is that by the time Namdini gets to the higher cost ounces the industry cost curve will move up as is has over the last 10 years. The +$1000 Oz will not look so bad in 10 years time, better than it looks against mines in their youth today.
The new guy Dave Anthony from Barrick was really pleased about the circuit setup saying there is a multi million dollar upside with the Flotation Circuit process saving heaps in construction costs for reduced concrete and steel costs and wear and tear on the rest of the reduced sized circuit. He had a cheeky accountanty sort of smile on his face telling about that. He tried to drop a joke in about this being the first presentation he has ever made. Canadians have a strange sense of humour he said. Yes, Canadians have a strange sense of humour. Don;t take the piss out of them for a friendly joke like Aussies do, it's guaranteed to offend. Dave is a tick of approval, don;t think he is signing up for problem builds at his age. Looks like easy money to me, and good luck I say.
On the CAPEX numbers Archie pointed out the proposed builder of the plant had done five similar African builds or setups dipping into the contingency budget only once when the owners of that one wanted changes mid build. $40 mil saving there hopefully. Agree that although large in scale the plant has few moving parts and should be a simple and efficient build.
I asked Archie two questions one privately before the meeting asking about my cross border security concerns which he was quick to answer that fortunately the locals are very supportive and friendly and that the USA has a permanent training contingent of troops patrolling the entire border of Ghana. That was my one major investment concern. I did not know that from my limited research.
And secondly from the floor after the presentations I asked him as a shareholder what his personal preference was for the future of the project development funding whether to issue more shares, JV, or sale and he initially pointed out that he and the rest of the board had “cut cheques” during the exploration phase so his interests are completely aligned with all the other shareholders but he diplomatically finishedwith the statement that he and the board would make the best decision to maximise shareholder interests. I am hanging in there because although CDV still faces the 'funding risk' analysts talk about (ie diluting CR) I believe that Archie will do what's best for holders and not roll over for a broker rogering.
When one of the analyst types asked a follow up question on that subject about access to the data room for potential investors Archie said that 4 African producers and 2 Aussie producers were perusing the data as we speak with another Aussie Producer asking for entry yesterday. He said after that the financiers were to get their look in but there would be a cut-off within a short period of time. Companies going through the dataroom.... now that's what I'm talking about. If Gold Fields won;t move and someone else likes cheap, low risk ounces, then let them put an offer to the board before things move too far and the option disappears. Some will be just bum sniffing for industry intel but given the current low share price makes a CR look almost suicidal, the window is wide open for win-win corporate action.
The primary official business of the meeting was concerned with the issue of options remuneration and it was interesting to see the difference in voting support for the different directors. Archie had the most support with only 20 mill no votes up to 80 mill no votes for the new guy Dave from Barrick and Canada. Maybe the no vote for Dave was because of the suspect Canadian sense of humour thing…lol.
I did feel a bit out of place attending in my work clothes amongst about 20 suits so I sat at the back with one other civilian looking investor who I chatted with. He has been a holder for 4 years and said he was looking at or hoping for a buyout at double the current share price where I am hoping, as a value investor that the COM Bank will stump up the 350 mill and we can maximise the value in about 5 years after the loan has been paid off. Everyone to their own I suppose. A buyout at double the current share price looks more realistic than some here wanting US$200-250/Oz type numbers. Whether or not CDV is worth more than double current share price, the reality is that almost nobody is buying 38c today and I can;t imagine $76c getting knocked back by enough to stall at least control of the company.
All in my humble opinion and experience, no doubt flyboy will add his considerable intellect and analysis to the situation.Good Luck
