direct ship ore re-re-visited

Because Direct Ship Ore offers a fast and easy way to ensure cash inflow when needed in 18 months and is a stimulus to share price, I have dug up my post of 9th March entitled Direct Ship Ore revisited, and reproduced it.

Probably one needs to print out the Gantt Chart in the Feb 2010 Scoping Study so it can be referred to as you work through it.

My understanding is that there is A LOT of interest in this ore. A LOT. Much work, patience and money has gone into getting the Trial Mining Licence. While the 6 months rule does not appear to be policed strongly, I would not be pushing my luck.

Post #7852235 (March 2012)

In the event that mining is going to go ahead now (given that everything is in place), where to from here?
I suggest the best starting point is the scoping study done in Feb 2010.

http://www.avancoresources.com/pdfs/PositiveResultsForRioVerdeCopperProjectFeasibility08Feb10.pdf

It makes terrific reading now that AVB have come two years down the track. The plan it sets out could easily be activated today.... such that very profitable DSO mining commences while the main processing plant is being constructed concurrently (as per the Study)... and the major drilling program continues off-site.

Certainly there is nothing stopping the DSO mining now.

It can be done readily and also since then the 50% chalcocite hit and more high grade ore has been defined.

OK... look at the first two years of simple Direct Ship Ore (ROM grade 25%). Page 7 of above.

I will plug in updated figures into these two years as follows... identifying fixed costs and variable costs.

1. Y1, Y2 Allow a small 10% increase in ROM production to 11,000 tpa due to expanded resource.

2. World Copper price say $3.50 and not $2.50. thus Gross Sales $15.8m per year

3. Cost of sales goes to $4.2m for each Y1 and Y2

Bottom Line.

Scoping study profit (2010) Y1 $ 4.5m profit Y2 (-) $2.5m loss

Current Study (2012) Y1 $ 9.6m profit Y2 $2.6 profit.

The two years of DSO are modelled as being identical. The difference between Y1 and Y2 reflect deductions for Cap Exp of $2.0m Y1, and Y2 suffers a $9.0m penalty.

Conclusions

Incredibly, the cumulative Cash flow after two years of DSO goes from being a miserable net $2.0m (2010) to $12.2m (2012 Study). The mine has still provided capital expense funding of $11.0m in both cases.

WOW! That is a fantastic difference.!!

So now after two years DSO you have banked $12.2m in cash profit, and funded total Cap Ex of $11.0m as well.

Post Ends.......

Updating. the Capex.. the $2m in Year 1 appears to be for setting up the DSO operation, although with some help from Xstrata this might be reduced. The $9m in Year 2 appears to be for the Flotation Plant. If the idea is to stockpile this HGZ material and use it as feedstock for MAJOR Antas North plant, then this $9m can also go into AVB's (and our) pocket. Then again if the HGZ material can be sold off somehow through Xstrata, rather than processed (concentrated) there is scope for the money to keep flowing in.

SO.. Bottom line (Indicative only!) is cum cash flow is $12m + $9m = $21m, after 18 months from now.

THAT is why I keep coming back to DSO. Doing nothing about it when customers are wanting it, permitting is done, Xstrata is on board to help, and cash is needed badly in 15 months.... is so slack.

Get this little cash generator started. Right Now!! No shortage of staff to oversee it either...

That will secure funding for future drilling at least, so no more placements or capital raisings thank you.