Opencut pit at Challenger was originally slated to produce 105,000 oz at cashcost AUD278 over twenty months, average head grade 5.9 t/g, starting October 2002. So far they have done 38,000 oz at AUD340, headgrade 4.2 t/g, with the company saying all main mining and processing forecasts being met or exceeded. However, I understand that DOM have found up to 100,000 t of the lower grade material in the open pit shell that was not originally to be processed in the 20 month period is fact about 50% above previously estimated grade. This is being blended with the harder primary ore they are now encountering. I guess the net result will be a moderate reduction in processed head grade, but higher throughput, given probably no significant variation to cashcost. If we assume original cashcosts will still be met, the maths suggests that opencut should average below AUD250 for the next 12-14months of its life. Cashcost in September will probably still be above AUD300, but probably below AUD200 from December quarter on when strip ratio really falls plus head grade goes to 7 g/t. Once this does happen, DOM might get more attention. Presumably FY2004 result will be pretty good.
Re underground, my guess is that looks like they are confident of around 150,000 oz at AUD325 over three years, but could be lower costs if they get high recovery on the bonanza grade (say 50 g/t plus stuff). Mining costs per ton will be high, so key will also to get mining techniques right. Extra ounces are likely in my view from redrilling M2 shoot from underground, plus main M1 shoot is still open a depth at high grades. Better resource / reserve definition in the deeper levels (and hence mine life) is however going to probably a little further off.
Exploration both around Challenger and in WA doesn’t seem to have turned up anything economic yet. DOM probably needs some decent results to get a real kick on.
As at end FY2002, DOM have over 20 million in tax losses. Some will presumably eaten up this year, but still a good position. About 40,000 of hedging left I think at prices above current AUD gold price. Currently capped at about 35-40 million, with cash and bullion outweighing debt by about 2.5million as at June 30.
Just my thoughts
Angus
I hold DOM
FXR Price at posting:
0.0¢ Sentiment: None Disclosure: Held
