My little Summary of MUN May 2010From the last quarter report...

My little Summary of MUN May 2010

From the last quarter report and investor presentation, the Feb and March gold productions were back on track to 2000 oz per month. So in full production for June quarter should be back to around 6000 oz. (Hopefully). However, even with 24,000oz per annum, I think the Engenho Gold mine is under performance. Rather than just blame the management, I am trying to find out what are the actual problems here.

The real issue for the mine is the actual grade of the ore is lower that expected (regardless the tailing damp incident). During the study phase 2 years ago, they expected the average grade was around 4.5 ~ 5 g/t, but the actual grade is just above 3.2 g/t. So currently, even in full production, the mine can only produce 6000 oz of gold per quarter (or 24000oz per annum) instead of 8000 oz per quarter (or 32000oz per annum) as previous forecasted. Hence higher production cost and low profit margin.
JL mentioned achieved production target in recent presentation and quarterly reports, so he must lower the gold production target since last Sep when they realised the grade was stabilized around 3.2 g/t. So any forecasts done prior to 2009 Sep quarter for Engenho are not useful any more.

According to JL, the current bottleneck of the mine is the mill - the mill is full. They could dig more ore from the ground, but the mill can�t process any more, with the lower than expected grade of ore, gold production couldn�t reach any further.

What can they do to resolve this?
They turn to Crista.
Crista not only just provides additional gold ores to Engenho production, it also provides the opportunity for MUN to install a second mill and upgrade the production facility in Engenho. The new mill will process not only the ore mined from Crista, but also take the extra load from the current Engenho mine. Crista being an open pit mine with �expected� higher grade ore, so ideally the average cost of production should be lower. So Bring Crista to full production as soon as possible is the best move for MUN at this stage of the game.

Other poster mentioned the 2011 production target for MUN should be 100,000 oz. That was in the plan back to beginning of 2007 as they thought they could bring Torrecoillas into full production in 2011. But due to the issues of the mine and the limited funding, they had to delay this for more than 1 year. The good thing is, the gold in Torrecoillas didn�t disappear, and the trail mining has good and consistent results. However, I don�t think to raise $33M funding is an easy task at this stage.

So the question is when and how to raise the $33M to bring Torrecoillas to production.

According to JP forecasts, when Crista joins the production, Engenho would reduce the average production cash cost to $565 US per oz and increase the total production to 50,000 oz per annum. Assume gold price is around $1050 US per oz, that translates to $24.25M US EBITDA per annum. Give it around 20% discount, that is still around $20M US EBITDA per annum.
In this case, raising the required $33M funding becomes far more achievable, they can do this via mix and match of capital raising, loan, debt convertible notes, self funding etc�.

I now sort of understand the path that how MUN becomes a 150,000 oz gold producer in medium term. Off course, we would have to wait until the real production figures come out when Crista in full production (maybe mind next year).
And the sure thing is, there will be no room for another mistake�.

So what needs to look at in the next 6 months.
1. Can Engenho stabilize its production around 6000 oz in next quarter with costs under $650 US per oz.
2. Does Crista has consistent ore grade ?
3. Can MUN really ramp up the Engenho gold production with JP�s forecast�..
5. Does the trail mining from Torrecoillas has good and consistent results ?
�.


It�s a long journey, with so many steps / milestones ahead. But I can still see the logical path behind this.

The recent capital raising failed to achieve their target. I think (only personal thought) that was direct result for the CFO resign. But at least they are still alive and fighting for the future. Now they have more $4.5 M cash on their hand, which is enough for the Crista development.

No doubt, MUN is a high risk stock, but it also has huge potential. They have so many cards on hand and just waiting for development. But if you are looking for a safety first kind of investment, it is the stock for you.

The world market is crazy right now, A few Trillions US dollar were printed by US last years, and few more Trillions of Euro are going to print in next few month. Can�t see any reasons why Gold price would go down. Plus $AU is dropping, and local gold miners are affected by RSPT (thanx to the Rudd government), sooner or later, the market would turn their eyes to gold miner like MUN (which is Australian owned with operation overseas) in my opinions. But obviously, MUN has to achieve all the milestones first to prove that it�s worth for investors� money. Then it will be a huge return for the current shareholder.


DYOR