The elephant in the room is using diesel to generate energy. So until they rectify that there will be no chance they can cut costs significantly. The only question mark from the quarterly report is while they have good resource they still dig & process lower concentrated ores than previous quarter? dont they want to show potential buyers that they can cut costs?
In terms of energy, each tonne of Cu produced requires ~100 million BTU (20% of energy is used in mining and 80% used in milling and smelting etc.). Cu production is highly energy extensive compare to 16mBTU/ton for iron, 25mBTU/ton for steel and 70mBTU/ton for zinc.
diesel price is around $16/mBTU while coal price is $2.4/mBTU. coal power generation is about 1.5 times more energy efficient than diesel generator as well. That makes diesel 10 times more expensive than coal.
My rough estimation based on 30-40% energy efficiency of diesel generator gives energy cost per ton for Cu is $5000-6000/ton. If they switch to coal the energy cost will be $500-$600/ton.
So it is no brainer to switch to coal. That comes in the term 4a in the report. probably, they need $10m to facilitate immediate debts and $70m to build new coal power plant. However, I'd rather have new people with deep pocket take over DML than sticking with Blumont.
I think it is risky to hold onto DML now but I think all parties (banks, potential buyers, Blumont etc) know that the issue is solvable hence DML is still alive (at least another month or so! ;-)
DML Price at posting:
4.8¢ Sentiment: None Disclosure: Held
