HGO - Chart, page-376

Hi bayhunter

Bob Fulker's first announcement confirming Lachlan has done a wonderful job was great to read, I hope he comes up with some fresh and rewarding thinking in his new role and has a plan to fill the plant ASAP.

CYM and Nifty:

Always good to see if fresh thinking can come up with a viable outcome to what seems to be an impossible task.

I had a look at the May 24 scoping study for Nifty which has a measure of the smoke and mirrors that I have come to expect from Milan Jerkovic.

Disclosure:
I lost a lot of money believing the storeys Milan Jerkovic was telling in relation to the Wilunga gold mine when he was the MD of WMX.

I made a bit on MLX by getting out to buy HGO when Peter Cook split the Gold and Copper Assets in late 2016 into two companies and left his 2IC to sort out the Nifty mess.

I'm glad I didn't stay in until MLX sold Nifty and the rest of the copper assets to CYM in exchange for $36m of possibly convertible notes.

The following comments are based on a helicopter view so Errors & Omissions could be an issue.

Nifty Key Scoping study.

(1) The Devil ( Funding looms high as a major issue)

One normally has to look deeply into the detail to find the devil thats lurking to burn the unwary.

My first port of call was the cash flow slide. It shows negative cash flow of $125m in the first year, followed by a forecast 6 year pay back period.

Keep in mind HGO couldn't borrow $26m with a 6 month pay back so Funding looms high as a major issue.

When you look deeper in slide 3 (Total Material Movement) you find that there is a total of 675mt of waste material to be removed and that the $125m cash drain in year one is being spent on removing 90mt of that waste material which at average mining cost of $3.5/t ( optimisation inputs and outputs slide) would cost $315m it throws up a big red flag. If $125m is right then whats in the bottom of the pit must be costing an arm and a leg to get out which is exactly the experience we had in the bottom of the giant pit which shattered our dreams of big returns.

At that point I was inclined to say "No opportunity to see here" but was interested to find out why there was no other cost, other than digging the hole, to get all that forecast cash flow.

(2) The real cash flow story.

Digging deeper ( a lot of that necessary in this space) one discovers that

(a) There is $51.5m of debt and bonds that need to be refinanced urgently.
(b) $175m needs to be spent on refurbishing the plant
(c) $227m needs to be spent on the mining fleet.
(d) the $200m market cap has to be serviced if existing shareholders are going to make anything.
(e) Another couple of hundred million will be needed in the first 7 years to fund the cut back and working capital.

The $880m NPV of the forecast cash flow might struggle to cover that and no one is going to provide all the equity thats required at an IRR equal to the discount rate 8 %.

Executive Chairman.

Matt Fifield and his investors might be on a steep learning curve as the Milan Jerkovic story plays out unless Matt is tarred with the same brush and has leveraged himself into a high paid job for as long as it lasts.

No profit history information readily available on Pacific Road Capital so his capabilities are a bit of a mystery.

HGO Share price:

Back to the main game. Good to see volumes rising and lines being wiped