Ann: Optimisation Study Highlights Robust High-Margin Ag Project, page-6

My initial thoughts are this doesn't stack up. Here's why..

1. They've used very bullish A$ and Silver prices (at time of posting - USD29.335/oz AUDUSD is 0.6225 = A$47). No bank will finance on current prices - ever.. and neither will a commodities house. I looked at 10 year and 5 year average of each to get some idea at what would be bankable.

2. Discount rate of 5% is very incorrect. I'd be using 10%. You can't borrow on a personal mortgage at 5% and they've not factored in cost of equity. 10% will straight away halve the valuation

3. They haven't deducted CAPEX from the pre-tax operating surplus. It's upfront, whereas revenues out in 10 years are worth ~50% at 10% discount rate.

4. AISC doesn't include CAPEX allocation, financing, etc. There's also no indication of mining dilution or similar. That'll be ~10% at least on grade for a financier but I'll let them have that for now. They won't get great payability on all the metals as this will need to be sent to China smelter for extraction and there aren't many of those that smelt lead anymore. Perhaps Henan province which is a decent way up the Yangzte. Transport costs of this need to be taken into account.. etc etc.

5. Head office and other costs will not be immaterial, and they'll be needing to do a lot of as yet unfunded exploration to get any mine life extension.

Here's a very rough prelim review.

		10 year average	5 year average
1	USD COMMODITY PRICE ($/OZ)	20.83	23.8
2	A$ EXCHANGE	0.7468	0.6926
3	A$ COMMODITY PRICE	27.89	34.06
4	Average Annual production (included Ag equivalent for Pb and Zn)	4.25m	4.25
5	Silver Payability	95%	95%
6	Smelting & Transport Costs	5%	5%
7	NSR $/oz	25.17/oz	30.74/oz
8	Average annual NSR $m	23.64m	$144.76m
9	AISC/oz USD	16.62/oz	16.62
10	AISC/oz AUD	22.25/oz	23.99
11	AISC $ per annum	94.56m	101.96.
12	Operating Margin (NSR - AISC)/oz	2.92	6.75
13	Operating Margin $m	$12.41	$28.69
14	Value of 10 year operating margin - 10% discount rate	$76.3m	$176.3
15	CAPEX	$331	$331
16	NPV	-$254.7m	-$154.7m

That's incredibly rough but I don't have days to waste on this... I may have made a mistake, but unfortunately on my back of envelope numbers, this just doesn't stack up. Even if you make it 100% silver payability, no smelting/transport costs.. it is still negative.

This only maybe works if you have a view that silver will continue onward and upward steadily and that a bank / financier will look at it and agree that instead of say a 5 or 10 year average, that it will go up and stay up the entire LOM.

Sorry guys. No dice.