burnakura feaso out, page-27

There was one positive from yesterday’s announcement which offsets the negative of the higher cash cost in stage1.
The metallurgical tests for the heap leach have been producing results of 80-90% recoveries.
That is very high for a heap leach operation if they can be achieved in the field.

Cash costs for stage 1 rising from my $1,100 assumption to $1,223 results in a drop of $2.6mill/year in cashflow.

An increase in recoveries for heap leach from my assumed 70% to 83% (nearer to low end of test results) increases cash flow from stage 2 by 2.6mill so offsetting the stage 1 increase.

The increased cash cost has a fixed impact on cash flow regardless of POG i.e. at $2,500 the cashflow is still $2.6mill less than it would have been using the lower cash cost.
However the increased recoveries for stage 2 have a variable impact on cashflow because it adds ounces so the cashflow impact is larger at higher gold prices.
At $2,500 gold the increased recovery of 83% vs 70% adds an extra $4.6mill cash flow.

The higher recoveries and increased ounces of stage 2 would also reduce cash cost per ounce produced further boosting cash flows although for now I ignore this and keep my cash cost assumption on stage 2 at $800/oz.

Therefore the overall impact was neutral (at current gold prices) to mildly positive at higher gold prices.

The increased capital costs by around $10 mill, I am guessing was mostly due to u/g development costs which I should have thought about when I raised my cash cost assumption. U/g mining was not in the original plan. However when looking at the value of all three projects combined, $10mill becomes pretty insignificant.
It is the possibility of needing to raise money through another cr that would have more impact.
Hopefully they arrange a further line of credit for Andash.
If they increase debt for Andash to $80mill, it is still less than 1 year’s cashflow at full production so not excessive.
There is no need to raise cash until after Andash gets the go ahead and then the sp should be strongly re-rated making any possible cr less dilutive.

You would still have to consider yesterday’s news overall negative because of the possibility of a future cr but the price was and is still much too low and considering Burnakura is our smallest asset, the reaction was expected but excessive IMO.
I have dropped my valuation on Burnakura as a stand alone project to around 12-15c after increasing cash cost assumptions on stage 3 to $1100.
I still believe Burnakura alone justifies the current sp based on stage 3 output. Gabanintha offers good upside through stage 4.
Obviously Andash offers much more upside near term and Jervois more upside again long term.