operating margins and profits , page-9

So lets start with management guidance from last Nov.

"Cash costs are forecast to average US$417 per ounce for 2011. Capital expenditure for Modder East for the year is expected to be US$42-million, equating to a capital cost of US$350 per ounce for 2011. Capital costs over the life of the mine remain unchanged at approximately US$100 per ounce. Included in the total capital cost is US$21-million of development capital. Total costs will therefore be US$767 per ounce.

Gold One is expecting earnings of US$59-million in 2011, based on consensus broker views of the gold price and exchange rates (US$1,234 per ounce and ZAR7.69/US$1, respectively) after an amortisation cost of US$17-million based on the current published Modder East reserve and mine plan. With 806.9-million shares in issue, Gold One forecasts US$0.07 earnings per share. All costs take into account latest real prices for goods and services, the anticipated wage increase as negotiated in April of this year, and inflation rate forecasts of 5%.

Looking at these numbers I'd say the numbers that management provided is at best EBIT or EBITDA (the last part mentions 17 million amortisation)so I'm going for EBIT.

So their estimate is 7 usd cents per share for CY2011.

So my guess is the interest part will be 5 million + 1 off charge related to CN deal being cancelled ( see section 2 of Dec Qterly it refers to 1.3 million)

Now important to remember is that all development and capital costs are amortized over time. Hence their impact on each years actual profit depends on the rate of amortization.


I can only assume that the 17 million figure above reflects what the accounts believe to be this amount for the 2011 CY

These capital costs impact cashflow in the period that they occur but not earnings this is a separate matter hence it is not acceptable in accounting terms to calculate the EPS based on the estimated DEV & CAP cost spend per ounce in any given period.

Why? because like I said above these are amortized over time usually longer than 1 Financial year.

So using management figure of 59 million and reducing for Interest + one off financing items this figure would now be 59-6.3 million you get 52,7 million USD. As for tax I have no idea what the rates are in SA but I'm guessing they will be paying little due to previous years accumulated losses.

So 52.7/(807 million shares) = 6.5 USD cents per share

This in my mind is the target management have set themselves.

To get an equivalent number from the numbers provided in the quarterly is not possible we would need to know the amount of items that sit on the balance sheet as assets ( ie Dev and capital) and what type of depreciation/amortization rates the company is allowed to use for these items.
As it states above they have said that this will be about to 17 million USD for 2011 CY.( they do expect to add another 42 million to the amount but I didnt know what they have on the Balance sheet as at 31/12/10) That is all you have. You could use the higher cash cost rate and they use this 17 million figure.

So assuming slightly higher gold price 1300 - 467( current qtr cash costs) = 833 USD per ounce assuming their other estimates for Management overhead , amortization are the same then the actual EBIT figure would be slightly higher than their Nov estimate assuming all other factors remain constant.

You can however determine what their cash-flow impacts will be based on their estimates and their current qtr numbers. Use one as best case other as worst case but they are no more than Cash Flow per share for the period under evaluation.

PS - I'm not an accountant so don't take what I've said as gospel just my engineering take on it.

It is also ST buy especially when you consider one line from the quarterly , although it is yet to be proven.

"On track for March quarter production guidance of 25,000 ounces"

Additionally on the cost front you have the following statement

"Development and development efficiencies continue to increase with an ever increasing number of
development ends and attack points. Increased on-reef development has increased available face length
such that, at the end of December 2010, Modder East had effectively opened up sufficient reserves to
support our planned production profile for a period in excess of six months should no further development
take place. This level of flexibility, combined with the continuous build up in production levels at Modder
East, underpins our confidence in achieving our production guidance of 120,000 ounces for 2011."