Quarterly Report

I'm with you guys in that BDR SP is very frustrating. I am in the camp that it is due to a bit of both the macro manipulation of both equity and metals markets and the fact that BDR is targeted because of a challenging Q1 report.

If BDR can turn its operations around in Q2 then the SP could move upwards very quickly, so understanding what a "good" Q2 report looks like ahead of time is important for retail investors waiting for this report before investing as being able to determine what "good" and "poor" is in real time may be important as the shorters will undoubtedly be ready to jump one way or the other very quickly.

Q1 Report

As I see it, the main issue for BDR in Q1 was that the mining fleet couldn't get enough ore to the plant and as such the plant had to run a significant amount of low grade stockpile feed. Ore mined totalled 308kt whilst the plant put through 1.02mt - thus the 700k shortfall from the ore body was sourced from low grade stockpiles, or 70%. This in turn lowered the head grade to 1.1g/t which is 21% lower than the ore body reserve grade of 1.44g/t despite Duckhead ore being blended. This then flows through the process for a lower recovered percentage (90% for Q1 vs. previous Q's of 91-93%) and ultimately less gold produced for the Q of 32,500 oz. Well below the required annualised run rate to hit a 200-220k oz target (which needed to be 50-55k oz for the Q). This then also increases the Cash and AISC per oz as there are less oz to cover all the fixed and semi-marginal costs of production, etc.

Q2 Report

For Q2 to be "acceptable" BDR need to show that their operations are back on track to deliver current guidance of 200-220k oz p.a. for the CY14 year. As Q1 was disappointing they have to outperform in the remaining 3 Q's to deliver.

Early on in Q2 we were told that production would be skewed to the 2H of the CY but on 9/4/14 BDR announced that mining at Duckhead had resumed. This should improve the Q2 performance.

For me I will scan the QR and look for:

(1) A vast improvement in ore mined from 308kt in Q1 to closer to the required 1mt level. Given that BDR is looking to ramp up their plant to 5mtpa it would be a "good" result if mining was +1mt and an "acceptable" result if it was c. 800kt and a "poor" result if it was lower.

(2) Plant throughput is not an issue as even if mining levels are lower there is a massive amount of low grade stockpile ore that will keep the plant fed. "Acceptable" mill throughput would be 1mt and a "good" mill throughput would be +1.2mt showing that ramp up to 5mtpa is on-track. I would be very surprised if throughput was less than 1mt.

(3) Head grade needs to return to close to the reserve grade of 1.44g/t and possibly higher if they are blending in significant quantities of Duckhead ore. This will largely be determined by how the mining fleet performs. A result similar to Q1 would be "very poor" as it would show that the mining can't/ isn't keeping up with the plant capacity.

(4) Recovery rates need to rise only a percentage point or three to be "good". A fall below 90% recovery rate would be "poor".

(5) Gold produced needs to increase from 32,500 oz to between 55.8-62.5k oz for BDR to be on target to achieve its CY guidance of 200-220k oz. Some accommodation may be appropriate given the wet season and the interruptions at Duckhead and bedding in of new (larger) mining fleet. I still anticipate that 2H will produce more gold than 1H but I want to see a good trend developing. I would think an "acceptable" result would be 50k oz, a "good" result would be +55k oz and a "poor" result would be less than 45k oz.

If BDR hits 3 or 4 "good" results then the SP could well move 10-15% very quickly regardless of POG movement on the day. I would be surprised if BDR hit a number of "poor" results as you'd expect that a revised annual guidance would have been issued by now.

Fingers crossed BDR gives us a number of "good" results.

I have my fill of BDR so won't be acting on the QR - either buying or selling. I'm here for the long term, but I would love it if fellow HCer's were able to correctly analyse the Quarterly and get in before the institutions and shorters could correctly position themselves

Cheers
John