re: Ann: Trial Mining Permit Received for Old... “SLR were a lot...

re: Ann: Trial Mining Permit Received for Old... “SLR were a lot cheaper 5 years ago than ABU are now though.”
Very true FMX and SLR had a decent resource base at that time as well, so no-one should expect ABU to increase from here by the same spectacular magnitude as SLR did from its 2009 lows but that doesn’t rule out upside measured in the multiples from here.
5 years ago we were in the middle of the worst part of the GFC when all stocks were collapsing. Gold was also dropping rapidly from a peak near $1000 early in 2008 on its way down to $675 late 2008.
Gold is now above $1600 compared to half this price back then. So its probably not that meaningful to compare the mc of ABU now to the mc of SLR during GFC lows.
Perhaps its a little more meaningful (but still very difficult because there are so many differences) to compare their mc’s now. The most obvious difference is that we are a developer while they are producing. They have been u/g, we will be mostly open pit. They use a full processing plant and we will use low cost gravity only (with very similar recoveries of 92-94%).
Their resource supports a near 10 year mine life, ours around 6 years based on resources if excluding Buccaneer for now but with so much exploration potential to extend.
Their mc is swinging between around $800mill and $1.5bill, ours around $120-150mill.

ABU aims to progressively ramp up production in an effort to minimise risks and avoid taking on debt and further cr’s.
I couldn’t agree more with this strategy.
SLR used the same approach although larger capex needs did necessitate cr’s for SLR along the way.
We may need more capex also in a few years (maybe for Buccaneer, maybe something else) but we should have much stronger early cash flows than SLR have had.
SLR is still ramping up 4 years after first production and will keep doing so for at least a few more years and will be a much larger producer than ABU from 2013 onward.
SLR has used exploration and acquisitions to grow their resource base. ABU should have little trouble expanding the resource base organically and may also look at acquisitions down the track, although with so much exploration ground exploration is likely to remain the focus.
In 2011 as SLR were ramping up to 63koz for the year, the mc was already hitting $500mill. The NPAT was still only $15.8mill for 2011.
In our first year, post trial mining, for stage 2 capacity is expected to be 150ktpa. We almost certainly will process GH in year 1 as it is already in the indicated category containing 34kt at 45g/t for 50koz. If we also process ore from OP to fill the remaining 116kt plant capacity over the year using material averaging just 10g/t, the full year would still work out to an average grade of 18g/t.
At 92% recovery that would produce around 80koz (compare to 63koz for SLR in 2011) and on my numbers a cash profit of around $65mill with around $50mill cash flow estimated from GH ($16mill NPAT for SLR in 2011). The $50mill for GH is the same as the number given in the previous HK presentation a few months ago which was based on analyst estimates of 50koz for GH and used scoping study numbers.
My assumptions are cash cost in line with scoping study at just over $500 inclusive of royalties.
The first year is likely to see pits to only 30-50ms deep with lower strip ratios and higher grades than assumed in the scoping study (a pit down to 100ms with an obviously higher strip ratio and 11.5g/t vs 18g/t now more likely with GH's 45g/t in the mix. The study also assumed a lower 85% recovery vs a more likely 90% plus now). All this points to likely lower cash costs for year 1 vs the scoping study $511 estimate. I stayed with $511 to keep it conservative. I allowed $21mill for admin and exploration and $1700 gold and 1.05AUD. Spot gold and AUD gives me around $59mill cash profit still multiples higher than SLR’s 2011 result and better than double their 2012 result.
SLR last year produced 102koz and the mc ranged between roughly $500mill and $1bill (pre-merger).
Assuming all goes well in stage 2 and we progress to stage 3 (300ktpa) then the higher throughput makes up for a lower average grade (without GH) and we see closer to 100koz/year in line with SLR 2012 production with profit around $68mill (double SLR’s $31mill for 2012). On those comparisons ABU looks very cheap relative to SLR but of course its not that straight forward as SLR will see much stronger production going forward (but also presumably a much higher mc as well as this higher production materialises).
So still difficult to compare because SLR is still ramping up to much higher production and has a larger resource base but ABU’s mc is a fraction of SLR’s while its first years estimated profit (on my assumptions) should be much higher than SLR’s profit in 2011 and 2012. For 2013, I’m estimating a profit for SLR in line with 2012 as Murchison is only just commissioning and there are significant one off merger costs, but 2014 could be multiples higher at around $145 mill or around double my estimate for ABU. Even so ABU has a mc of around $150mill compared to SLR at around $900mill (and as high as $1.5bill when gold was $1700-1800). I think we have some obvious very strong upside once we are a proven producer.
ABU’s estimated $50mill cash flow from GH alone (50koz out of a total of 723koz at OP) makes the current mc look very cheap and that 723koz ignores the 677koz at 3.61g/t at neighbouring Buccaneer.