Another rainy day in paradise.Which leads me to ponder not the...

Another rainy day in paradise.

Which leads me to ponder not the weather but whether the cut off grade is likely to drop in the new mine plan at current prices and what that will mean.

The missing assumption to determine that is the stope only mining cost.

Being Sunday I wasn't surprised that a bit of devine intervention came into play when I opened HGO on HC and the updated mineral resource page that opened was from the first MRE in 2021.

At that time the big unknown with HGO going under ground was the mining cost which an analysis of a few small miners was leading me to the belief that it would be in the order of $75 /t.

On looking at OZ minerals Prominent Hill project I discovered that their UG project was very similar to HGO's in that it started with a 400m deep open Pit. https://hotcopper.com.au/posts/54465188/single

Their Mining Cost was $47.10 overall with a stope only cost of $33.90 including ore handling.

Given that our economic study has mining cost at $47 it's probably reasonable to assume that our stope only cost given all the other similarities might come out at $34.

The big question is how much have costs risen .

The other thing we know is that dropping the cut off grade from 0.8% to 0.6 % lifted plant through put from 850KT to 1.400 KT

Which leads me to believe that at current prices if the stope only mining cost was:-

* $34 cut off grade could drop to 0.4% cu eq, plant through put might rise by 500 KT pa which would deliver an extra $5.5m in free cash flow.
* $37.5 .......................................0.43% cu eq, ................................................450 KT pa ............................................. $4m ............................
* $41 .......................................... 0.47% cu eq.................................................400 KT pa.............................................. $2.7m............................

on the down side if mining costs are up which seems pretty inevitable free cash flow will drop by 1,400,000 X $4.70 = $6,580,000 for every 10% increase.

The other earner that is in the mix is lifting the gold recovery. Kicking it up to 85% in the economic study should deliver about $6.5M pa.

Seems we need to lift the high grade through put to have a significant effect on the annual free cash flow at current prices.

If the plant can't be filled with higher grades grabbing the lower grades on the way past if they are profitable, makes sense I guess.

With costs rising its nice to know that there is also a lot of upward pressure on the metal prices.

Nice to know that in a capital intensive business like HGO is in, inflation is like a rising tide that gives you a free trip up the return on investment ladder. The bonus being of course that the crazy market is IMO pricing all the hidden gem assets at less than the exploration history and leases are worth.

A bit more devine intervention, the sun has come out for the first time in ages be good to get away from the desk.

Cheers.