"there are still many variables that come from being in production that just aren't answered for the market yet - HGO is still in ramp up phase."
"Not sure if all funds have flexibility to go deep on juniors or stocks without an income history..?
A broker told me many years ago that they don't recommend miners to their clients because there is too much risk in the sector.
I think you will find there are only a few funds that service high wealth individuals that have the ability to invest in Miners that aren't in an S&P index.
Getting ahead in this space is all about understanding the risks and taking a measured view of how well the company has them covered.
HGO's score card.
Processing:
There is no development and no ramp up risk because HGO has been operating the plant successfully for 12 years and knows exactly what it can do.
There is still the breakdown risk but HGO has that as well covered as it's possible to do by having a store of all the major critical parts.
Mine Development to first production:
This was all that HGO was funded for and has been completed on time and we are told within budget.
The risk associated with the possibility that the ES assumptions in relation to geology and development costs where too ambitious is behind us because they didn't need to raise more capital to get there.
Mine development during the ramp up:See foot note.
HGO is reliant on free cash flow from operations to fund this.
Whist it seems they are operating on budget we won't know for sure until the first quarterly report as a miner is announced.
The Cu price risk was covered by hedging so all should be rosy.
The what we don't know risk:
The discovery that the Kanmantoo MRE lodes stopped short at the fault and the need for a CR to fund more exploration is offset by the discovery of the deeps and the potential for a big discovery being delivered by that extra capital soon rather than well down the track.
Fingers crossed all will be well.
The Punting Risk:
The form sheet makes the odds that are currently on offer by the market very attractive IMO.
Foot Note:
The ES assumption for mining cost was $47 / tonne of ore. Roughly $30 /t for stope mining and $17 /t for mine development .
Mine development started 6 months before production and, on the basis that the current mine plan is all there is to the project, finishes 12 months before processing is done. see figure 59.
The ramp up to 250 m /month using 1 Jumbo took 4 months this doubled to 500m /mth when the second jumbo arrived and will jump to 750m a month when the third jumbo arrives.
So cash costs will be much higher than AISC through to month 15 and will hopefully stay higher as the ramp up to full capacity continues. These higher than ASIC costs need to be funded by free cash flow from operations which Management have indicated by their hedging plans are sorted at a CU price of $12,500.
With the copper price sitting well above that we are well in the money.
