How low will it be sold down ?, page-21

But the AUD POG is not falling, it has actually risen to AUD1429 while the USD POG is 1199.60. Lets say by the end of next year the AUD has dropped from 84 cents to 70 cents against the USD with gold still at USD1200, then the AUD POG will be $1714/ounce.

Various input costs could also be cheap or cheaper including oil and machinery due to falling commodity prices. Perhaps even mining wages could fall somewhat due to rising unemployment.

At a US exchange rate of 70 cents the debt would blow out to A464m on the USD325m loans. They are due to repay half the Red kite USD75m loan next year starting in March - ie AUD53.6m at that exchange rate, which would leave them with debts of $AUD411m. In 2016 assuming the same parameters another $53.6m would be repaid leaving them with the main loan of $AUD357m which is due to be cleared in April 2018 (I think), some 15 months later. At that stage they would probably have around $100m in cash/deposits and so the question is whether banks etc would be willing to lend about $AUD300m to clear the old debt and remain in operation.

Who knows where the POG would be in April 2018? It could be at USD1000 or at USD1600 with an exchange rate of 70 cents (ie AUD2280/ounce).

I do not think all is lost at this point, even though it may appear to be the case if you just look at the headline figures.

At USD1200/AUD1400/ounce I think they can stay in business until April 2018 so long as they get Simberi fixed to be at least cashflow neutral in mid 2015.

In addition SBM may have some options up its sleeve to increase production at both Gawlia (increase ore from the main 8g/t mine to increase output) and Simberi (process some of the sulphur complexed ore), but that may involve some outlays and would take a while to implement.

Of course there is nothing it in it for shareholders for a very long time so what is the purpose of holding? Buying SBM shares is like buying a cheap option on the AUD POG.

loki (just my view and I have been wrong many times)