long term buy opportunity, page-8

I have started to take more of an in TRY following the proposed takeover of AZH (whose project I like), so I had a look at the quarterly report.

What strikes me is how high cost the all in cost of the Argentinian operation is once you take into account actual mining/processing costs, exploration, admin, royalties, and especially the cost of drilling the tunnels.

I get a rough estimate of closer to $1050-1150/ounce, without taking into account depreciation/amortisation and interest payments (now that they have taken up a loan).

TRY will need to find ways to lower its cost per ounce. The installation of the ball mill is expected to raise output by 15%. I wonder if there is a way to lower the cost of developing the underground tunnels and also the costs of mining the ore? The cost of mining and milling seem a bit high for an operation in what is supposed to be a low labour cost country.

I am assuming that $6m of the $10.4m in capital expenditure went towards developing the underground tunnels in this quarter, which achieved only 616m metres (a cost per metre of $9740). If I am right then this is far above what this would cost to undertake in high labour cost Oz and way above such costs in the Philippines.

The concern for TRY is that the falling POG and even faster fall in the POS means that they need to process more ore to maintain profit level. In particular the very steep fall in the POS has meant that the average grade for the mineral JORC resource/reserve has probably fallen from around 8.5 grams/tonne of gold equivalent to around 7.5 grams, or possibly lower.

TRY is now in a race to extract as much profit out of its Casposo operation as possible to fund exploration and mine development in Guyana (assuming the t/o happens). IMO if the POG stays around its current level and they do not lower costs significantly there will not be sufficient funds in the near term to pay dividends to an expanded shareholder base (10 cents at 170m shares is $17m that TRY could not afford).

Obviously in the event that the POG went down to $1200-1300/ounce TRY would probably just be breaking even when all costs are factored in. The POS would also fall back, perhaps even more in percentage terms so the average grade of gold equivalent would fall also, which would have implications for mine profitability.

I just thought I would put some ideas out there in case people want to discuss. I know it can be painful, but it is far better to be realistic about costs instead of just believing the bottom line figure of $500/ounce.

loki (just thinking aloud)