texas mine economics & interesting thoughts

Got into this stock earlier this week after doing a bit of research on it and enjoyed the nice run up in the share price on large volumes and imo the best is yet to come.
Have done some 'back of the envelope' calculations:

- Plant capacity is expected to be 800ktpa -1Mtpa (according to previous quarterly), at an average grade of 79 g/t. Lets assume 800kt production @ 79 g/t = 63.20M grams

- Ag recovery from heap leaching is expected to be between 60-72%, lets assume 65%= 41.08M grams per annum

- Ag recovery from heap leach solution using Merrill Crowe circuit is above 99%, assume 99% = 40.67M grams produced Ag per annum. This equates to 1.43Moz of Ag produced per year.

- Using a very conservative operating margin of US$5/oz produced (imo operating costs will be much lower compared to when Macmin were operating the mine, current Ag prices are much higher and hence operating margins will be much higher in reality) we will end up with cashflows of US7.17M per annum.

Based on above conservative caluclations the current fully diluted market cap of approx AU$26M AYN still seems very low especially considering production is expected to restart late this year. If we have any upside to above assumptions it will only increase the cashflows.


Few interesting things to also consider that I think have been overlooked:

- AYN still has tax credits from Macmins tax losses in previous years which based on 2009 annual report is AU$11-12M. These tax credits can be used to offset taxes on AYN's profits in the future. This would possibly mean that AYN's tax payable for the first few years of production will be minimal if any.

- There has alerady been a large amount of shareholder dilution for long term AYN holders however I think this has come to an end and here is why. AYN are planning to purchase some new equipment (HGPR, Merril Crowe circut etc) to reduce the OPEX cost of the Texas mine before entering back into production. (bear in mind most of the mining/processing equipment is still there and Macmin paid AU$20M for this equipment). Now if I were management what would be the best way to fund this new CAPEX? AYN has no real debt on its balance sheet so if management are clued on they will be trying to find the best possible deal for A$5-10M debt funding secured over the Texas assets. This woud definately create more value for existing shareholders than issuing more shares.

- The fact that they intend to produce Ag ingots as opposed to Ag powder is a very good move as they have a much wider market to sell this product to. This shows that current management have learned from previous mistakes made by Macmin and are fixing it.

These past few days are just the start of the march forward imo, the next few weeks and months will be very interesting as I think we will get re-rated in a big way once the economics, new JORC resource and more reagional drilling results come to light.

Will be holding on to these shares very tightly and buying on any dips.