In my quest to fully understand what we are invested in I have been pondering two hidden gems that are not often mentioned when talking about our Hidden Gem Opportunity.
(1) The 20 % of capacity in the "factor of safety" in the Economic Assessment.
To cope with and provide for the unexpected it seems HGO's engineers have assumed that the plant will only operate at 80% manned capacity both when calculating the cash flows from the mine plan and when calculating the cut off grade for the high grade ores that are needed to fund the mine development in the current mine plan.. This compares with the historical 94% at which the plant has operated .
(2) The ore in the Halos.
The EA is based on developing the mine sufficiently to provide open stopes that can deliver enough high grade ore to run the plant at 40% capacity which leaves excess fully funded capacity which can be filled with ore from the open stopes halos. Once the stopes are open the only additional site cost involved in mining the stopes is the stope mining cost of about $20/t of ore mined.
The flag fall costs of running the company for the year ,at 50% capacity ,developing the open stopes ($28m) having the plant maintained for the year ($7m), manning the plant for half the time ($13m), the other site costs ( $5m) and the Corporate costs ($4m) which total about $57m are comitted so the additional site cost of delivering halo ores to the stockpile is Circa $20/ tonne of ore.
At this stage it looks like we only need about 40Kt of ore from the halos to fill the plant to manned capacity.
That would come from halos grades with an average grade of about 0.5% which at 91% recovery would deliver circa 182t of Cu per month.
At current hedged price and first half costs the NSR after royalties is about ,$ 11,800/t of cu. If the plant can process 40,000 tonnes and deliver an extra 182t of cu per month the additional free cash flow over the next 15 months while Nugent is being developed could be about $32m.
Better things coming soon:
Now that developing the mine to full capacity can be achieved without raising capital and associated dilution existing shareholders, things just get better and better.
The cut off grade required to fund the mine development and manning the plant full time will be lower because the first half is funding all the fixed costs.for the next stage.
Bob buying.
His buying would only need to kick the price back up to where it was 8 days ago for the company to get a red please explain card.
Not sure that the following hypothetical response would cut the mustard.
"whilst it's two and a half years since our last MRE we have informed the market of our exceptional drilling success during that time and detailed some fantastic high grade intersections. Whilst we are about to update the MRE and declare a maiden mineral reserve and an extended mine life, the market is as thick as a brick, if it doesn't realise good news is coming following the recent announcements indicating the we are doing much better in all areas of delivering on the promise in the last Economic Assessment "
HGO Price at posting:
4.7¢ Sentiment: None Disclosure: Held
