HGO (ASX) Ann: Fourth Quarter Activities Presentation

Originally posted by PhillW ↑

Curiouswon,

Q2 -Revenue for the quarter from concentrate sales was AUD46.9
Q2-C1 cost for the quarter of USD1.94 /lb (AUD2.07 /lb)
Q2-C3 costs US$2.76 or AUD$2.95lb
Q2- Net Debt (31 July 2014) AUD$13.1M

Q3-Revenue for the two month quarter from concentrate sales was AUD36.0
Q3-C1 cost for the two month quarter of USD1.85 /lb (AUD1.99 /lb)
Q3-C3 costs US$2.70 or AUD$2.91
Q3- Net Debt AUD$11.6M

Q4-Revenue for the quarter from concentrate sales was AUD38.5 million
Q4-C1 cost for the quarter was USD1.97/lb (AUD2.30/lb).
Q4-C3 costs US$2.91 or AUD$3.40lb
Q4- Net Debt AUD$9.2M

The above say's it all! HGO are down AUD$8M on revenue when compared to Q2 2014/15 even though the AUD has dropped 10 percent in the same period. C3 costs in AUD terms has risen 45c or 15% since Q2. D&A accounts for 15c of the 45c increase. What this indicates is that HGO with a hedge of AUD$3.50 are making very little money

C1 costs have risen from AUD$2.07 in Q2 to AUD$2.30 in Q4 even though fuel costs have plummeted AUD$0.40c per litre over the same period.

Noting we are now receiving 8% less in AUD$ terms for our product but fuel has dropped 30% over the same period I would have expected C3 costs to be lower than the $3.30 odd achieved. Yes, HGO are making a very small profit at current levels but does have free cash flow due to D&A.

I work at a mine site that trucks similar tonnage and if I assume all is equal, we go through approx 40,000 litres of diesel per day for the mining fleet. With the drop in diesel prices over the last 6 months from $1.38 to as low as 94c then HGO , all being equal could be saving $16K per day or $480K per month on diesel. So HGO could be saving around $5.7M on diesel costs per year. Noting that they have a 12 month perstrip taking place and have estimated it at $16M with $5M already spent, I am hoping that the remaining $11M pre strip was calculated on fuel prices going back 6 months ago, because if it's calculated on today's price they have a lot less free cash flow than I expected.

The stock market is forward looking and 2016/17/18 are the golden years for profitability for HGO. If we do not get a price re-rating in 2015 and the market starts to concentrate on LOM and 2019/20/21 declining production levels then I fear everyone will be selling their HGO shares at a significant loss.

The upside for HGO is the possibility that Q1 costs will reflect the large drop in diesel and C1 costs drop accordingly back down below the US$1.85 lb level which at today's exchange rate is AUD$2.40. If they have C1 costs anywhere near what they predict at current exchange rates then profit will be zero and free cash flow will be maybe 50c lb. No profit definitely means no dividend, not that I think paying a divvy should be high on managements agenda. Elimination of debt as fast as possible and building cash reserves should have been the priority in this market. Renegotiation of the debt after getting to a net debt positive position is a major priority as cash looks be tight to say the least. Realistically the last two quarters of debt repayment have been disappointing to say the least. In the 5 months since July 31 2014 net debt has reduced by $3.9M or $800K per month. At this rate HGO will take approx 12 months to be NET debt free (cash on hand >= debt) which is not to be confused with being debt free. I do note they are listing $2M in investments which I don't think they are including in the net debt calculation but this needs to be confirmed.

Expand

Thanks PW, appreciate the effort.
Definitely a critical time ahead for HGO ! Wish they did have $2 mill in investments - think you'll find that was only 0.2 mill. If this was their holding in PYL, they should have sold out at the very short lived peak - they should have no business holding such a stock . (smacks of possible conflict of interest?? like forgiving the previous debt of IMT)
Exploration (at or near mine) success and/ or a new finance deal (on better terms and allowing greater flexibility of cash management) are the key short term SP catalysts for this company in my view.

GLTA Foyt

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(20min delay)
Last 6.2¢		Change 0.001(1.64%)		Mkt cap ! $129.9M

Open	High	Low	Value	Volume
6.3¢	6.4¢	6.1¢	$270.4K	4.312M

Ann: Fourth Quarter Activities Presentation, page-26

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