Thanks for this post go to Jon G and FML for their time and permission to share...and to my missus for her typing skills LOL. Hope it assists...
I tried to contact Neil Le Febvre on Monday but was told he was on Annual Leave...I politely asked if I could speak to someone else from mgt and was put thru to Jon G (CFO & Secretary)
I told Jon that I treat FML as my own company and that I like to keep up to date with operations rather than taking a knee-jerk reaction to SP. At this stage of proceedings I am focussing more on the team meeting its targets and putting any surplus funds to good use.
In my 2-3 yrs with FML I have developed an unshakable belief in the company BUT I'd been left feeling deflated after reading the Quarterly. Hence I was keen to contact mgt and have a chat.
Jon and I spoke for 20 mins and for the most part I was happy with the outcome. Things were a little tense to start with when I questioned Jon about our production targets. Allow me to para-phrase from Kentwangs recent post (as it is basically the same question I asked Jon). Question:##On 11 July 2011 in the June Quarter Production Update announcement it was stated “The company delivered 18,102 ounces of gold for the Quarter, in line with its market guidance. It is targeting 100,000oz in Calender 2011”.
Subsequently, on 28 October in the September Quarterly Activities report it was stated “The decision was therefore taken to divert some capital development funds from our newly opened mines at Coolgardie into securing the Crescent acquisition. This has meant that whilst production at Coolgardie was at record levels, the ramp up of the new mines in this Quarter was not accelerated at full pace. We therefore expect the Coolgardie operations to produce around 85,000oz in this calendar year and move to a production run rate of 100,000oz in the December Quarter.”
In announcing diversion of funding for the Crescent acquisition in the June Quarterly Activities Report (29 July 2011) no mention was made on it impacting on the ramp up of new mines, or Calender 2011 gold production guidance.
My question is why FML management in providing funding to CRE in June 2011, failed to appreciate and accordingly notify the market that this would impact on the ramp up of new mines and gold production guidance for the remainder of 2011?##
Jon’s response was that the company never specified that the often-stated CY 2011 Prod target of 100.000oz was to come wholly from Coolgardie Operations!!
He said he was puzzled at the disbelief of holders…”We have been open and transparent” and he also stated…”We have bent over backwards to make it clear about loans to CRE”
Our talk was starting to unravel at that point and I decided to remain diplomatic and move on to some different questions (from which I gathered quite a bit of helpful info).
I have decided to present our conversation in interview format to give an accurate picture of how it went. Please do not treat the text as 100% accurate as I scribbled his comments as he spoke. There are however some exact quotes which I have highlighted in speech marks.
ME: Lets move on. Jon, forward estimate Development Costs for next Q are 7.5 M. Does this factor in full ramp-up of the Mount and Tindalls Open Pits?
JON: “A lot of that will be for Open-Pit at Big Blow. A small portion to the Mount and a small portion Tindals U/G.
ME: Am I right in assuming we’ll need to wait a little longer then, for full ramp-up of The Mount?
JON: “I’m not on Mining Planning so I can’t comment precisely. I think the Mount wil grow in Dec Quarter and get very close to full run rate in the next 3 months.”
ME: FML estimates for next Q at Coolgardie look tight (Approx 41M outflow/43M Receipts). How close are we to getting CRE Cash Flow +ve?
JON: “Let me start by saying that Mark Hine and the team at Laverton have done a fantastic job in such a short time.” Jon went on to say that CRE should reach Cash Flow +ve in MARCH due to reduced campaign DEC Q. He said Laverton operations were very very close to being turned around.”
ME: That’s good to know. I’ve heard lots of positive comments on Mark & his team. Jon, with $11M left in the bank, do you think we’ll be able to avoid another Cap Raising?
JON: “Its not on our horizon, we’ll survive on current cash flow.”
ME: So you think we’ll be self-sufficient on current operations?
JON: “Absolutely we will be sustainable if POG holds 1600 next few months".
ME: What can you tell me about Stone?
JON: "They are remaining in the background"
ME: Sure, but isn’t their presence proving to be a bit of an obstacle?
JON: “At the end of the day they lost/we won but in saying that we will keep trying to get them on board”
Me: Does our 82% stake (<90%) prevent us from utilizing CRE Tax losses?
JON: “Yes, it is holding us back in that respect. But it will be quite sometime before either FML or CRE pay much tax."
ME: What about use of Barnicoat Mill?
JON: “That will come down to a question of economics. The mill has no Crushing Circuit which will take 5-8 M to install. Some further capital will be required to commission but I’m hazy on the amount.”... “Some CRE areas have different Geological Composition to the ore currenty being fed through the Granny Smith Mill (GSM) and as these areas get closer to production, BARNICOAT Mill may be needed.”
*Jon went on to say that the GSM Treatment Deal with Barrick was “Very good and better than what we’d achieve internally.”
He said that GSM would continue to treat 2.5Mtpa for at least 2-3 more years.
ME: So, Jon are you guys, the Mgt team, happy with progress of the CRE T/O to date?
JON: “We saw CRE as an amazing opportunity and we grabbed it with both hands.” He added that CRE has already provided us with 13,000 attributable ounces so far with more to come in the Dec Quarter.
Jon acknowledged that the Coolgardie Pits were “a month or so behind schedule” but stressed that all the hard work at both FML and CRE operations would be reflected by excellent results in the near future.
I know this has been a long-winded yarn but I’ll leave you with one more bit of interesting info I gained from our chat…
Jon stated he would prefer to have CRE loans paid back to FML once Laverton Operations start showing profit. IMO this reflects an attitude to generating good cashflows for FML going forward.
I believe this outcome would be similar to a share buy-back, since many of us already considered conversion to shares a fait accompli.
It will also allow us to benefit fully from ALL CRE income rather than settle for an 82% share of profits.
In signing off, we have had a real crack at full T/O and just fallen short (for now!!)…. Now its back to business ie.cranking up fitnfams steamroller!
In time hopefully DT and board can achieve a favourable result and get Stone onboard.
I have a feeling that the next Quarterly will be a much more pleasant read-setting the stage for a rewarding 2012 & beyond.
Good Luck all
Couchy
FML Price at posting:
5.4¢ Sentiment: LT Buy Disclosure: Held
(20min delay)