The key change in the AISC lies in the assumption that DCN will be able to produce 20Koz of gold based on the >2.27g/t grade ores. Here are the scenario leading to the above scenario:
1) DCN had been processing ore based on stockpile ores at the 0.6g/t grade between 1st Apr to 24th May (this assumption based on page 38 of Equity Raising presentation where it was stated that only ~8Koz had been delivered into the hedge. 54 Days of processing that grade will deliver ~8Koz. That sort of qualify this assumption. I could wrong here if they had already started processing newly mined ores of better grade and therefore they have some gold kept safe.). For this 8Koz of gold there is no ore extraction and therefore no "mining" cost. So there is now a deficit of 20Koz for the remaining 37days. Working backward, the grade will need to be about 2.27g/t
2) This grade of >2.27g/t also require a total tonnage of 305Kt in order to produce 20Koz. Will they be able to make? Here is how I think they can make it. Mt. Malvern grade average around 2g/t according to JC and below resource/reserve figures indicate there may be such a grade in Mt Malvern mine. Obviously they will have to be very selective and only process ores of >2.27g/t. Also assumed is that they will be extracting 700-800kt of ores (equates to qtrly spend of $17M is maintained) both from Mt. Malvern and perhaps DoubleJay mine where better grade ores would by now be exposed. This will give them room to be very selective in the ore grade selected for processing.
In producing the 20Koz of gold using grade of >2.27g/t will greatly reduce the AISC/oz.
The formula on the calculation of AISC is as below (relying on the "$/t milled" figures): =(G25+G26+G27+G28+G31)*K26/G3+(G24+G25+G26+G27+G28+G29+G30+G31)*(750000-K26)/G3+7200000/G3 Red is the 0.6g/t stockpile ore. No mining cost and others... Black is the newly mined ore of 305kt of grade >2.27g/t Blue is to make the total mining cost to $17M which is the mar qtr cost to mine 700-800kt of ores over the last 37days. Please refer to my previous post on what the cells meant.
This formula is complicated to explain, so I will not attempt to do that.
Also by what I had explained in the above, there are so many assumptions that can go wrong and if so, then the above cashflow will be out. Hence my decision not to publish any of this cashflow projection in the future. It will be futile. This will be my last to share with you guys.
Interestingly the low AISC is generating lots of controversy! I didn't mean to do that but this is how the figure pans out based on my assumptions and it clearly shows that "grade is king" especially those ores from the O/P mine. This clearly says that the NTM O/P mine will become very handy in the future in generating good profit margin though haulage will add some cost to it. Nevertheless it is a good buy and no wonder LJ took the plunge to secure it even at the expense of share holding dilution. I think he had no choice because he just couldn't secure corporate style loan from the financial institutions. Likewise for the extra cash to open up more flexibility in ensuring smoother operations (Mar qtr is a difficult quarter and a repeat of that will kill DCN chance of seeing SP move to the upside and for a long long time!)
Cheer. DYOR.
Do not use my opinion to influence your investment decision.
DCN Price at posting:
27.5¢ Sentiment: Buy Disclosure: Held
