Good times ahead as the cash piles up to provide the capital to...

Good times ahead as the cash piles up to provide the capital to achieve and sustain the 40% capacity operation and then move on to filling the plant and achieving bigger things while returning a reasonable percentage of free cash flow to shareholders to enrich our lives.

The risk profile of the investment in HGO has improved enormously in the last 6 months.

When looking at the upside we need to keep in mind however that there are a lot of assumptions around what lies underground and few, if in fact any, endeavours are more difficult to forecast outcomes than an UG mining venture.

When looking at the downside few companies have a price to replacement cost of assets ratio as low as HGO. Hidden gems galore in this space.

I have had two big concerns with the underground project.

(1) Mining expertise and mining cost forecasting.

We were let down badly by management in the final years of the open pit when it became evident that they didn't have a handle on what it was going to cost to extract the ore from the bottom of the pit. Their estimate was based on historical costs in the upper part of the pit and no one it seems realised that as the pit bottom got smaller the unit cost of mining was going to rise dramatically. The board lost confidence in management and withdrew support for ongoing mining after the pit was finished which resulted in the open pit being sold for a pumped hydro project with conditions fortunately.

Along came Lachlan and four years of struggle and uncertainty which culminated in the last quarters report which confirms that he has assembled a management team that are experts in the trade of underground mining and forecasting costs ,I have eliminated , big concern number 1, from my worry list.

(2) The risk of a pit wall collapse that takes out the access decline servicing the underground.

A lot has been spent on engineering studies and wall stabilisation to mitigate the risk which gives us some confidence.

It good to know that the pit decline is a temporary access that will be replaced by the Nugent decline which is now underway. Only a few more sleeps and big concern number 2 will disappear.

The plus is that there is a lot of ore that becomes available when the stable pit decline is no longer required.

Time to join the family for lunch.