For me the depletion in cash Q1 was a massive worry. The fact that they secured a debt facility is also a worry as they can only be mitigating against going into a negative cash balance although the fact they have it in the pocket is also good. Comparatively I think a above average result from here would be similar to Orezone without the country risk. To do this they still need to prove themselves this quarter. To say what is pretty much accepted as a one gram ore body with a 4 million tonne plant will punch out 160k ounce in H2 big call. Although all the engineering companies sandbag the plant capacity in reality it could probably get to 6 million specially at the bond work index stated in the feaso studies it's pretty soft material.
I'm on the fence right now up side is the ore body turns they start to average at least 10k ounce a month and it will make good fcf at that. Also very real possibility of Chinese take overs.
On the down side I don't expect 3 k ounce average to turn into 10k ounce average in one month. Typically with artisanal mining depletion it is a gradual thing as the mining progresses deeper down the Rl of the pits. Not clear as to the grade control forward out look. They say it recons well with the plant but it's blindingly obvious it is massively out from the resource model. With the current cash balance I would say there forward looking grade control outlook is probably one month of mining and hence any magical forecasts coming from the management team right now I take with a pinch of salt. West African wet season in particular CDV is about to kick off in one month. Mining in oxides during this period is never ideal. Study all the open pit mines in west Africa you will see this negative production results through this periods. Still the biggest risk for me is the geology and there clear lack of understanding of it in the initial period. In time the ops team will get ontop of this and the forecasts will become more clear however at this point there is no way they have a full grasp of this.
The uknown and not stated by management for me is the woeful first quarter of the plant. You say build up to name plate value takes time in reality for a well built plant most the mines in west Africa have done this in a very short period. Or do you mean the ounce profile from my logic not used to that being referred as name plate. I wish they would divulge what caused this although as I said on this forum several times I think they just had no ore to put in it from starting mine operations way to late. My assumption is cash was very low to finish the plant and holding off this mining start up to the last second was most likely to stop the cash burn. Not ideal but I guess they just had to do what they had to do.
From a buying or selling the share perspective personally I decided in the pre start up hype to clear mine at 75 cents knowing and studying all the risks of the ore body prior. I didn't care in the development curve as historically no one ever does and the developing mines always seem to ride that curve. For me given Orezone current valuation TIEs horrible Q1, unknowns this quarter and the complete slowdown of announcements from the company my point of view is it's sitting fair value at best right now. It's far to risky for me to buy or short at this stage.
TIE Price at posting:
59.0¢ Sentiment: None Disclosure: Not Held
