Ann: June 2016 Quarterly Activities Report-TGS.AX, page-25

DB54

In short answer to your query, I do not see another CR if current prices hold. In fact the take I got from the reconciliation I did (which I'm hoping and assuming is right) was that with the VAT rebate, capex expenditure, and Trade receivable increase, that at the average copper sale price of $2.17, the operation was marginally profitable. That was despite the fact that the production figure for June qtr was well below expectations (due to the leaching issue)........

Remember, VAT rebates at some point will be refunded, provided the freeze from the govt is removed. From the information we have, the DRC central bank has removed this freeze in July. This freeze isn't a once off, and has happened to the company before (you can confirm that from past qtr cashflows). Trade receivables, i.e. billing to Gerard Metals that is yet to be paid that is due and owing does in fact get paid. Gerard are a massive company and TGS has an off-take agreement in place. The company (TGS) has consistently stated in announcements that prices are fixed for the quotational period. Capex expenditure affects the cashflow on the basis of the timing of draw-downs from the finance facility. The company has addressed this by stating they had drawn down further on the facility in July, notwithstanding the cash at bank as of the 30/6/16 does not look into future and would not recognise this.

As many people have stated in the past, the issue is the copper price. My opinion is that at the current price, and on the evidence we have, the operation appears marginal, but you do not have to be Einstein to figure that one out. I think it speaks volumes that they obtained the facility to re-finance and obtained a portion of this from the world bank......

The concerns I have in the following order are issues that the company unfortunately has no control over:
1. Copper prices
2. Grid power availability
3. Weather affects on leaching
4. Political upheaval attributable to the upcoming elections (which were slated for Nov-16)

Things that are within the companies control:
1. Production
2. Debottlenecking
3. Cost control

I think that we place far more scrutiny on TGS given the marginal conditions we find ourselves in. No one on this thread (you or myself included) have any clue as to where the copper price is heading. Even the great players in the market, Glencore, BHP, Rio, others NEVER saw the extent of the copper price fall that presents itself today. I think a fair comment to make on the price is that, just as the price could fall further, and some pundits say as low as $1.50, it is also plausible that it could go the other way to $2.90 (who knows). All I know is that at the current price and lower most players are marginal or in the red. I can only go on the actions of others and the facts I have, namely:

1. That most of the big commodity players are holding onto their copper assets
2. That no one is selling good copper assets, and as a result no one is acquiring them from others
3. That the big players are developing their good assets to maintain or increase production
4. That copper is a commodity which has vast usages, that does not have a viable replacement
5. That world consumption of copper is steadily increasing
6. That world copper production is hitting peak and then plateauing in the near future due to the stalling of development and the fact that established mines have lower grades or higher contaminant %s (concentrates) as their resources are depleted

My sentiment and disclosure is that I do not advise anyone to buy or sell (they have to make this decision on their own) and I hold shares in TGS.

The issues next year will be the repayment of Principal starts from 31/1/17, this will add more burder to the cashflow. Countering this hopefully will be the reduction in AISC attributable to debottlenecking and corresponding higher production metrics. Simply as the mine produces 30% more, the fixed costs correspondingly fall by the same % as they are carried over a larger production volume.

gltah