@speculator101 and others, apologies for the length of this post, it is more for myself, but I think it may be valuable for anyone considering buying, selling or holding.
As for my sentiment being none, this is by far my largest holding, and with an average around $2.35, I am deeply underwater at the moment.
I try not to get emotional with stocks, but I think despite the current poor sentiment, and the action with gold price, I still think the prospects for the company are very good.
I justify this with the following research, and refer back to various presentation from Regis, and in particular Diggers and Dealers, as that is the most recent "forward looking commentary" from the company.
Important Note: we don't have the final report for 2021, but the 2021 numbers for Duketon should be fairly close to 2020, so I am using those figures. This is by no means advice, nor even accurate information as the numbers being used are "old".
The Baseline Numbers From the 2020 Annual Report: 352,042 ounces of gold produced at AISC of $1,246 per ounce.
Shares On Issue Shares before Tropicana = 512m Shares after Tropicana = 754m Increase in shares from Tropicana = 47% (as well as some debt)
D&D 2022 Forecasts Production of 460,000 oz to 515,000 oz of gold AISC A$1,290 to A$1,365
2022 Forecast compared to 2020 actuals Gold Production Increase 460,000 oz = 30% increase 515,000 oz = 46% increase
The interesting tact is if we take the high AISC estimate for Duketon ($1410) and the low AISC estimate from Tropicana ($1140), it appears the AISC for Tropicana is about 20% lower than Duketon. That number changes to 8% if we use the low AISC from Duketon ($1340) and the high AISC from Tropicana ($1230).
If we pick a number in the middle, the AISC for Tropicana should be about 15% lower than Duketon. That is pretty significant.
As @nordesmic pointed out in another post the AISC has been on the rise at Duketon for the last 4 years or so, and I think this is a reasonable way of trying to mitigate that.
To Hit Upper Guidance An 8% increase in production on the 2020 numbers is required at Duketon to hit the upper guidance.
This means if they can hit the upper guidance target from Tropicana, the Tropicana deal will almost be justified relative to the increase in shares VS the increase in gold production and reduction in AISC (50% more gold, 7.5% reduction in overall AISC).
I appreciate it is like for like, but I believe there is good upside to come from Tropicana in the future - as detailed below.
Tropicana Performance I don't know how deep people dug into the Anglo reports to understand what we have bought. I didn't look, I just took what the company said at face value, but with the recent declines, I have ramped up my analysis.
Interesting bits to me are in bold.
From AngloGold Ashanti's half yearly report: "Production at Tropicana was 120,000oz at a total cash cost of $1,039/oz for the six months ended 30 June 2021, compared to 144,000oz at a total cash cost of $822/oz for the same period last year. Tropicana has also been impacted by labour market shortages. Production was lower year-on-year in line with the mine plan, which continues to focus on waste removal in the Havana cutback. As a result mill feed during the first half of 2021 comprised low grade stockpiles, and ore from the Boston Shaker pit and the Boston Shaker underground mine. The lower mill feed grade was offset by higher than planned mill throughput and metallurgical recovery. Total cash costs per ounce were negatively impacted primarily by lower production, a stronger exchange rate of the Australian Dollar against the US Dollar and increased operational costs.
The trade-off study to assess the optimal method of mining the deeper ore in the Havana orebody determined that a final cutback of the Havana pit provided superior returns to an early underground strategy.
Tropicana’s gold production is expected to be impacted by a failure in the wall of the Boston Shaker open pit in June 2021. The pit was redesigned, with no impact on the Ore Reserve, and some ore scheduled for delivery in H2 2021 will be deferred to H1 2022.
During the second quarter of 2021, Tropicana produced 62,000oz at a total cash cost of $1,023/oz, compared to 71,000oz at a total cash cost of $894/oz in the corresponding period in 2020."
Tropicana In Short and as I see it: - Lower production at Tropicana by about 16.5% compared to the same period last year (2020) ---- I am confident (hopeful?) the work on the Havana cutback will pay dividends and we will see an increase in production closer to the 2020 numbers (+15% increase)
- Boston Shaker Wall Failure ---- As I understand it, a short term impact - would like other people's interpretation of this ---- Should be back on track H1 2022
- Higher than planned mill throughput and metallurgical recovery ---- Can that be maintained? If not, why not?
- Currencies / AUDUSD ---- From Jan to Jun this year, we spent the whole time significantly above $0.76c with what I believe is an average of $0.77c. ---- Since July we have been consistently under $0.75c with what I believe is an average of $0.74c ---- Doesn't sound like much, but it is ~4% difference
- Havana Cutback ---- Superior Returns - this is pure upside for us compared to what was known at the time of purchase
AUD Gold Price Looking at the chart, for the first half of the year, we spent the majority of it well under A$2,400 for what I estimate is an average around A$2,350.
It is important to note that we spent a fair chunk of the first half of the year below A$2,300, and it is likely we sold gold down around this level.
Since July, we have spent the majority of it above A$2400, and I would say the average has been A$2,425.
In terms of my estimated averages for first half of this calendar year VS last 4 months is about 3.2% higher. Not massive, but again, it all add up.
Diggers and Dealers Presentation Breakdown I think this really is the more forward looking presentation that we have to base our decisions off, and as such, I will re-watch it and put my notes and questions here, and if I could get your thoughts, and other peoples, then that would be appreciated:
The first slide is about "Consistency and Growth", where the focus of the presentation, whilst about the importance of consistency, the opportunity is reflected by the prospects of growth.
Duketon - Moolart Well - Garden Well - Rosemont
"So we have, a 500k p.a producer, with 2.6m ounces in reserves, or, 5 years (its actually less, because they have already produced for 9 months, so closer to 2.3m ounces in reserves."
About the 7:50 mark in the video, Jim says they have extended the mine life to 7 years.
Rosemont - Growth opportunity down plunge, exceptional grades in the main zone, and 2 X potential for previously undiscovered ground that will be drilled. Extended life and grades.
Garden Well Underground - New zone, open down plunge. Not expecting first ore until late December quarter. Drilling to see if another potential underground opportunity.
Multiple opportunities for underground growth.
Tropicana (12:45) Very exciting and great potential from what is currently there. They believe it will grow.
After investment in the Havana Cutback (Jul - Dec 2022) they see production lifting from this years guidance of 120,000 oz - 135,000 oz to 135,000 oz - 150,000 oz.
If we refer to above, Tropicana producing 150,000 oz would represent total production of 530,000 oz, or an increase of 50% on 2020 production of 352,000 oz.
10 year + potential and a strong history of reserve replacement.
A lot of opportunity under the Tropicana open pit for which I believe testing currently in progress (no timelines however).
McPhillamys (16:00) 170,000 oz to 200,000 oz per annum.
Infra and Plant to be $350m - $400m.
Average costs around $1,100 - $1,200 AISC over the life of the mine.
Permitting is frustrating.
"Are planning to finish the DFS in August, this month". Yeah, nah.
Mentions Iron Ore price being up over $200, and the flow on effects in relation to the price of steel.
Interestingly, the iron ore price has since come back down to $120, which is a massive 40% reduction. Perhaps they could hedge the iron ore price off lows to mitigate any potential future rises?
High copper costs and high labour are contributing factors.
Provisions for Covid related risks and delays. Working with bidders to understand the cost structures. It will be interesting to see what happens "when we reach 85% vaccination rate and the state opens up again".
Exploration (19:50) Targeting 1m+ oz of gold
Expanded land holding at Duketon, lots of opportunity.
If you read this far, thanks very much, and I apologise in advance for any errors.
(20min delay)