POG and Kin production

Conservative management rules at Kin. Kin’s biggest holder, Delphi and associates, took 18% of Gascoyne Resources not long before that company went into administration when production failed to meet expectations. AM took over as CEO/MD of Kin when costs of building the mill were exceeding estimates and trouble with the lender was looming. For those reasons alone I expect there will be no rush to production until there is a huge safety margin. I don’t think we will see excited announcements about the POG.

I doubt they will regard short term gold prices as a safety margin … what goes up might come down. Better to find more ore, watch the POG, and think about finding $80 million for a mill when the Kin market cap is more like 300 million than 90 million.

For me though owning Kin shares is a bet on the future gold price. What I think might happen is neither here nor there … if I could see the future I would be on my huge yacht surrounded by fawning sycophants … but it is worth revisiting the PFS (2019 prices) because after the first attempt to build the mill pranged on costs and real world feasibility there was a lot of detailed analysis resulting in what looked to me like a really thorough PFS.

That thorough 2019 PFS was for 368 k oz gold based on $1800 per ounce production costs. One of the stated reasons for not going to production was the Cardinia ore could be mined for an AISC of around $1400 but the Mertondale ore averaged over $1800 AISC. Back in 2019 that made the Mertondale ore marginal. Because it was marginal it was also very sensitive to increases in the POG. If you think gold might go over $3200 the table below has my extrapolations. Kin added the 2500 figure earlier this year to the original 2000 and 2200.




Those figures are misleading though, because of the $1800 shells. Who stops mining gold that can be sold for $2800 an ounce because it costs $1800 to mine? We don’t know what $2200 or $2400 shells would look like because the PFS was so conservative. The whole resource was calculated at $2000 shells with a 0.5 g / tonne cut off. Even so the resource is approaching a million ounces – much more than the 368 k oz the above table assumes. Some of those million ounces wouldn’t be mined – for example Kin apparently have no interest in mining Raeside … maybe because the ore is different and wouldn’t suit the mill, and definitely because AM has been adamant that he doesn’t want a mine with dozens of small pits. Even so 500 / 600 / 700 k oz seems reasonable with $2000 or $2200 pit shells.

The effect of expanded shells would be to extend the mine life, bearing in the mind the above figures pay for the mill and other start up costs in full, so the extra production years are more profitable. None of this is being played up by the company, presumably because they want to raise the MC by exploration. The prospect is there if they succeed of funding what is a relatively modest capital outlay to complete the mill through placement, with a small enough loan to pay off in months rather than years at the higher POG. There is zero interest in fostering pressure to build the mill quickly. But the work on the mill that has been done and long lead time items already owned means when the time comes Kin can go into production quicker than would normally be expected for a new build.

Just sharing my thoughts. Bear in mind I have made no allowance for discoveries from the current drilling program or the recent new discoveries which have yet to be quantified ....