difficult to pay off huge debt, page-2

martie

"I am not sure how SBM can expect to pay off the $328 million debt given the high operating costs. I would be a little nervous being a SBM shareholder if the company doesn't perform to their 2014 guidance as per todays presentation."

Have a look at this presentation

http://www.asx.com.au/asxpdf/20130822/pdf/42htz5cztgq5gq.pdf

They have two loans:

1. USD250m which is not repayable for another 4 and a half years (ie April 2018) - gold could be back at USD 1800 for most of that period and they would have fixed the problems in the Pacific Island. So the only thing to worry about here is their ability to make the 8.875% pa interest payments.

http://www.asx.com.au/asxpdf/20130325/pdf/42dw1ftnlff8mt.pdf

2. The second loan is actually in gold - below USD1400/ounce they are required to make monthly payment of 2500 ounces. Since they are pumping out 400k ounce per annum they can easily do that. The last gold payment is due in December 2014, so not too long to go there.

The risk is that the POG goes below around AUD1300 and stays there for an extended period. That might require some change in plans operationally and perhaps in capital requirements. They do have cash on hand (over $100m) to help out. Some of this will be used on fixing the Pacific Island operations.

This is a high leverage play. If gold goes back up to AUD1600 like it did a few weeks ago then SBM ought to be be doing very nicely, IMO. All it needs is a lower AUD, but unfortunately the AUD is heading back up because of softness in the US Fed policies.

I hope the above. SBM is a gamble with significant upside and downside, and therefore it is far from being risk free.

loki