As I said, just some of my musings. The fact that cash costs...

As I said, just some of my musings. The fact that cash costs have pretty much stayed at a constant rate over the past year despite moves in currency has to tell us something. What that is takes a little more effort to deduce with the limited cash flow data we have available. You have pointed out that inflation has doubled over the past year whilst costs have remained about the same. I was just suggesting there must be a number of factors having what is an offsetting effect in the background so as that it becomes almost redundant for the time being. I acknowledge that inflation and sovereign risk can be a problem in these times. For the record I am a small time investor with an average lower than the current price so I am not overly concerned. My only real risk currently is opportunity cost.

But for now lets have a look at their cash flows. They have AISC of $899 for the past quarter (ignoring the fact that some of this was for stripping etc etc). They sold approximately 38k ounces with an average price of $1,097. This gives us about $7.5m in net cash flow. They then paid out $7.2m in loans. The report says that the cash and bullion position has fallen by about $3.8m since Sept quarter. However as I pointed out in a previous post Sept figures were based on a AUD/USD of 0.70 and POG of $1,115 whilst Dec Qtr. was based on AUD/USD of 0.73 and POG of $1,061. This is a difference of 4.3% on currency and 4.8% on gold. So that eats up approx. $1m of the fall and the rest would be assumed to be expenses not counted in AISC.

So moving forward lets assume they continue to pay debt down at $7.2m per quarter and have approx. $2.8m in other costs. This means they need to generate $10m to keep a consistent cash position and more to improve it. So based on 40k ounces per quarter they need to generate greater than $250 margin/ounce. Even say based on the status quo of right now with USD POG at $1,125 that means all they need is an AISC of less than $875 and to hit their production targets. People who are betting on the turnaround story obviously think this will happen. If you don't then that is fine. To me the risks are not significant from where we currently sit and the upside potential is far greater