I have not modeled Hillgrove, but since I do this type of work for a living, I have a few questions/suggestions.
- Have you considered the impact of throughput increases that will be coming?
- I would also add another 50% upside to the resource and I think that's conservative.
- I imagine that you have sunk the costs of building the mine, as you should. But you still need to take depreciation on the sunk capital or you are greatly overstating taxes.
- Loss carry-forwards from prior years will also reduce taxes
- You need to factor in the hedging.
- What discount rate are you using? For Australia, probably 7% is appropriate.
- Don't leave out sustaining capital. The fleet will need to be replaced in year 8. Plant sustaining is also needed, especially considering that much of the equipment is used.
- Then there is opex escalation, primarily labor, power, fuel, and grinding media, particularly under higher metal price scenarios.
- Use $1,500 for Au credits and $30 for Ag.
- You need to apply some value for Indo, although not much in my opinion.
- The real value in exploration upside is in the Kanmantoo near-mine and district. I'd add at least $0.05 per share for that, but I think it could be much more. That's on top of the 50% resource increase that I previously suggested adding to your model.
- Don't forget about closure and reclamation. $30 million in the year after production ends would be a reasonable number.
- Debt repayment must be in there.
- Cash on hand at time zero.
If I ever get the time and motivation, I'll develop my own model, but that's all I do for 50 hours a week. Not much interest in spending my free time on such things. I can say for certain, that it would cost more to build Kanmantoo from scratch, including acquiring the ground, than today's entire enterprise value for Hillgrove. You could say that for most junior miners, which is why I'm expecting a wave of M&A in the sector. It is vastly cheaper to buy than build, even with an assumed 40% premium. I know that my company is headed in that direction and friendly jurisdictions like Aus are high on the list. I think HGO will be taken out within one year. That's probably the best thing that could happen, but I'd like to see the share price above $0.40 before the offers come.
I know that I've recently said that I'd sell around that level, but I'm very impressed with the first concentrate production/grade. I've changed my mind and decided to ride this one out until the end. However, I could change my mind again if I see too much effort and cash being thrown at the Indo projects, instead of putting the cash flow back into K.
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