geolsec derisk the bobrikovo and melrose gold

Dear KOR share holders,

With the MP (mining permit) to be granted as per todays ASX announcement Geolsec Mineral Lease grant http://www.asx.com.au/asxpdf/20100412/pdf/31pqpm7j88yhz3.pdf

The company has de-risked or reduced the risks its Bobrikovo and Melrose gold projects.

The importance of cash flow and profit of the Geolsec project to support Bobrikovo and Melrose gold projects, if the two IPO are delayed or not going ahead, may have been overlooked by many KOR share holders.

The economics of the Geolsec project

First year production in 2010 with a targeted of approximately 15,000 tonnes per annum to generate a projected pre-tax gross profit of A$ 5-6 million, or between A$ 0.073 and A$ 0.088 a share.

It will be targeting a second year profit of A$ 9 million, and A$ 12 million in the third year of operation.

This represents a targeted gross profit of A$ 26-27 million over 3 years commencing 2010 subject to there being no capital dilution and to meeting the targeted sales revenue and operating expenses, the revenue stream represents a potential gross profit between A$ 0.33 and A$ 0.34 per share on a fully diluted basis. (Page 3 of todays ASXs announcement)

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If the Bobrikovo IPO is delayed or not going ahead in the medium term (eg due to market condition, etc)
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Gold production in 2011 will be targeted at 15,300 ounces of gold in concentrate for a pre-tax profit of US$4.7 million at a 70% recovery grade of gold to concentrate and based on a gold price of US$ 900. The anticipated capital costs of the Project were in the range from US$ 2.2 million to US$ 2.8 million. The estimated operating costs including mining processing and overheads are US$ 280 per ounce. Korabs share of the profit was to be US$ 3.36 million (A$ 4 million). For further details, refer to ASX announcement on 7 Sep 2009 Gold production profit targets, technical/financial data

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=00985600


The capital cost of the Bobrikovo project (US$2.2m, or A$ 2.36million) can be funded by the Geolsec first year profit of A$ 5 to 6 Million.

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If the IPO is going ahead (KOR shareholder will be entitled for in specie distribution, subject to holding KOR share before ex date for the in specie distribution). Geolsec's cash flow and profit will not be used for the CAPEX and OPEX of Bobrikovo gold project.
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The first year production target is 60,000 ounces of gold per year at an operating cost of $280 per ounce. The new anticipated capital cost is around US$ 5 million which will be covered from the funds raised during the upcoming IPO following the spin-off.
Korabs share of the profit (at US$1000/oz) will be approximately US$ 16-19 million (AU$ 17-21 million) depending on recovery rates of gold to concentrate.


A similar analysis can be done with Melrose project when the IPO is delayed /or not going ahead and when IPO will go ahead.

Hopefully the share holders can get the gist or drift of the importance of Geolsec project to Bobrikovo and Melrose gold project when they are delayed or not proceeding.

As always, DYOR and consider individual investment and trading aim, time frame, risk profile, etc.