Hi all,I've been following KCN for a while and I'd value some...

Hi all,

I've been following KCN for a while and I'd value some more experienced comments than my own! My interest is purely financial - no desire to be either unreasonably negative or positive, just to get some insight on my analysis/hear your own.

Overall, I'd say ~$200m seems cheap, given the TAFTA hearing and the upside potential of NE, but I'm struggling to reconcile some of the numbers/expectations I've seen posted here with KCN's actual financial position, as I see it.

CHATTREE. These numbers are from annual reports/production updates (NOTE: I haven't considered silver in the same depth):

	COST/Oz	Dec-16	Sep-16	Jun-16	Mar-16	Dec-15	Sep-15	FY-15	FY-14
1	All-In-Sustaining (AISC)	$416	$605	$902	$954	$854	$879	$833	$936
2	Dep'n + Amortisation	$383	$492	$385	$398	$238	$318	$190	$231
3	TOTAL	$799	$1,097	$1,287	$1,352	$1,092	$1,197	$1,023	1167
4
5	GOLD PRICE/Oz	$1,217	$1,335	$1,211	$1,118	$1,123	$1,111	$1,208	$1,291
6
7	CASH MARGIN	$801	$730	$309	$164	$269	$232	$375	$355
8	TOTAL MARGIN	$418	$238	-$76	-$234	$31	-$86	$185	$124

Aside from the Sep and Dec 16 quarters, when the company knew Chattree would be closed and (very sensibly) cherry-picked the best grades, the mine had been barely profitable for several years, which was reflected in huge impairment expenses: $-332m (FY13); $-86m (FY14); $-148m (FY15); $-250m (FY16 - this included the final writedown of Chattree to zero).

Obviously, at current gold prices, the mine would be extremely profitable, but for almost four years, when gold was ~$1400/oz, the foregone profit was actually relatively small.

NUEVA ESPERANZA. Sounds very promising! However, KCN, as it did for Chattree, has continually impaired the value of the asset from $100m in FY16 to ~$10m today, and there are very similar comments to now about multiple potential suitors in the FY16 annual report, which seem to have come to nothing. Aside from that, I have no ability whatsoever in valuing early-stage projects and so leave it to the expertise of others!

QUESTIONS.

1. Given Chattree was not an especially profitable mine prior to shutdown, where do you see the upside coming from in the TAFTA ruling?
2. Given the hearing ended a year ago, do you think the subsequest spike in gold prices would be considered in the ruling? (I have no idea about how this works on a technical front, ie. whether the tribunal can consider market conditions after the case has been heard, perhaps someone who understands the procedures better than I can elaborate?)
3. KCN's spoken about NE as an attractive sale prospect for years, at the same time as writing-off 80% of its book value. Do you feel like this time is different because of the higher silver price/additional permissions?


Thanks to any and all! As I said, my interest is purely in making good financial decisions, and I'd be very grateful for any reasonable responses!

Cheers