I am far from being an expert, and have never worked in the mining industry, but here are some points that came to mind
1. AISC of USD845 (including all royalties) is good, but not fantastic - it is AUD1100 which provides a margin of $430 at the current gold price. Admin, exploration and interest payments are some other outlays by RSG, plus its expenditure of about AUD12m on Bibiani C&M per year. AISC of USD845/ounce would make this a lower cost mining operation that could survive a much lower gold price.
2. I am a bit disappointed with the average grade of 2.8g/t. This is considered higher grade for open pit mines but is relatively low for underground mines, IMO. I suppose the proposed mining methodology and that this is not going to be a narrow vein operation means that the ore grade is sufficient for the mine to be profitable when factoring costs. The ore grade is around the same level as what RSG currently mines underground profitably in QLD so i will accept that they can do it profitably in Mali, noting that the milling operations are more complex (and usually more costly) for ore complexed with sulphide (which is why they have a roaster in Mali).
3. The drop in the ore grade from the current approx 3.6g/t to 2.8 g/t (assuming the ore goes through the same processes) means that annual gold production will fall from the present baseline of 200k ounce per annum to about 150k ounces per annum (excluding the recently added 65k ounces pa from the oxide circuit that was added in Mali). Basically the output is constrained by the capacity of their plant - about 2m tonnes of ore per year - the grade of 2.8 g/t, and the estimated gold recovery rate which is 83% (1.901m ounces of estimated gold production/2.291m ounces of contained gold in ore deposit).
4. RSG is not paying any tax in Mali this year and next but after that I understand that income tax will be applied (35%), plus Mali also gets another 20% as it has a 20% free carried interest. This may be offset to some extent by various deductions for the development costs it has undertaken and will continue over the next 2 years.
5. RSG's current cash cow is its small oxide milling operation (65k ounces per annum), that will mean their total output in Mali will still amount to around 205k ounce pa. As they will have ceased mining operations at the Syama pit from the end of this month their operating costs will drop as all costs should basically be related to moving the lower grade ore stockpiles to the mill and milling the stuff to produce around 140-150k ounces pa rate, my guesstimate (due to the lower grade of the average ore stockpiles relative to what they had historically been milling. I dunno what the ASIC will be as they have not provided a forecast - am expecting this in the June quarter report out next month.
6. The USD74.1m for developing the underground mine equates to about AUD97m. This is going to be a drag on their cash balance, especially as they are already in debt. They have perhaps 3 quarters before they start developing the underground mine so there is a bit of time to repair their balance sheet. Given that they are spending moolah all around the traps it will be interesting to see how that goes.
7. Bibiani will have to wait. At least Bibiani's average grade is higher 3.5 g/t and it is oxide rather than complexed with sulphur which requires more processing. However, I expect that mine to be hostage to the local town's demands and therefore at best be barely profitable - but I am biased.
8. There is some additional net income from the QLD mine to help RSG's funding needs, but its life is limited.
I hope to do a bit more thinking about RSG's position once they provide some guidance on 2015-16 costs and production.
Good luck
loki
RSG Price at posting:
33.2¢ Sentiment: None Disclosure: Not Held
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