My sympathies to all holders who had, like me, a gut-wrenching day watching SLR plummet. Commentators on the business channel were trashing gold as an investment, and posters here seemed understandably negative about SLR. I lost my appetite for both gold and food.
I operate however on the basis that we can't know what we don't know.
What we don't know at the moment is where the price of gold is going to go. So I visited Silver Lake's website and read the report done in October 2013. It was interesting to come across the Production and Cashflow estimates, but in particular their price, grade and operating costs sensitivity analysis. Since they identified the price of gold as the major unknown, I focussed on this.
I will use their AUD pricing: If the gold price remains where it is, using their number of $1370/oz AUD, in 2014 the A/tax loss will be 3.2 million AUD. However should the price they get be $1420/oz AUD, the A/tax Profit will be 4.7 million, or a difference of 7.9 million. Since projections for the AUD are that it will find a place somewhere between the mid 80s to low 90s against the US dollar in 2014, it is possible that a higher AUD price per oz will be achieved even if only through currency fluctuation.
Using these same two numbers (AU $1370 and $1420/oz) and projecting forward, 2015 A/tax Profit is 34.1 million at the lower end to 45.2 million at the upper end. Nicely in the black.
2016 - 48.1 million to 61.9 million A/tax profit. Beautifully in the black.
Other commentary which was interesting was that they state they have conservatively estimated grades based on SLR's production profile, and these could be more than 25% higher than their estimates. They have made broad production assumptions as underground development is at very early states, such as at CEB and evolving at Daisy, and hence expect upgrades to underground resources. They also think that their capex estimates and cost provisions are possibly conservatively too high.
And finally SLR has a very high sensitivity to grade which could easily be greater than 10% or around 25% higher.
My understanding of this is that in 2014 the bumpy ride will continue if the price per oz stays where it is or falls.
It will take only reasonably minor changes, such as the AUD falling to 85 cents, to push them towards profit in 2014. But once again, we can't know what we don't know and we don't know where the Aussie dollar will head.
Fingers crossed for all holders of SLR that the gold price can maintain that important $1370 AUD level per ounce.
SLR Price at posting:
46.0¢ Sentiment: Hold Disclosure: Held
