best gold stock 2011, page-18

Hi rumot, the capacity to repay the debt in 12 months will, of course, depend on a number of factors, particularly the gold price, the containment of outlays to achieve a further reduction in production costs, and the determination of management to prioritise debt reduction.

Although there seems to be a general concensus that the POG will average out at about $1,450 through 2011, nobody really knows where the gold price is heading, and in relation to production costs, the figure which we will end up with at the end of the year is also unknown.

The cost of production (COP) in 2010 was reduced by about 10% on the previous year to $805, and given the forecast increase in production this year to 155-160kozs, and a small improvement in grades, it should be possible to achieve a reduction in production costs of at least 12%, which would bring the COP down to $708 per ounce.

If we achieve an average sale price of say $1,400, that gives a gross profit margin of $692, multiplied by 155,000 ounces equals gross of $107 million for the year. Added to that, we have the income from the coal asset sale, and the cash holding of $49 million as at December 31st 2010.

How management decide to utilise the money is another unknown at this stage, but I believe that in the current unsettled climate, debt reduction should be a priority, and I'm hoping that management will take the same view, even though the Lehman agreement allows for a four-year repayment period. Mike