The stock may still climb back to 10 cents briefly, but if the count on the right is remotely correct there is little hope of it staying there. Next week (25th of June) is the big general board meeting held at the posh address of Toronto street. In advance of that we have had some stock option repricing , poison pills, and now a new study to examine the feasibility of the main project.
Cash costs, the equivalent of variable cost pricing, are estimated at $724.77 per ounce of gold. Silver is ignored due to its secondary role. Total capital plus maintenance costs are estimated (in great detail) at $154,349 mln. For this it is expected that 529,453 ounces will be produced over the life of the mine with a recovery rate of 89%. That works out to a “fixed” cost of $291.52 per ounce ( using the fixed/variable analogy further). The total cost per ounce is then $1016.29. A table in the report shows the sensitivity to the gold price as follows;
The report uses $1500 for the baseline. $1295,00 , where the yellow stuff is as we speak, is conveniently NOT featured as a possibility. Interestingly the $200 drop in the gold price causes an almost halving of the return. Another $200 drop would eliminate all profit which is not all that surprising as that is approximately where the cost of production are if certain elements that are not included in the full costs, such as royalties etc. are included. Lately just about every miner has managed to incur costs overruns of colossal proportions so there is no reason to expect these chaps to be much different. So, this is a screaming buy if you expect gold to climb to $2000 and up. If you expect gold to maybe hit $1000 or lower, don’t touch it with a twenty foot pole. By the way, you only have about 8 months or so and then the cash facility is gone, fully utilized. By definition therefore, this is as close as you can get to buying an option, which is exactly what everyone else from management to employees and financiers now has. Only difference will be that you are fully vested from the start and the expiry date is undetermined!
All of the above is predicated on a discount model that uses 5%. To what extent that is representative of a junior exploration company yet to move to actual production, is an interesting question. Judging by the 7% charged on the finance facility (not including the equity bonus) one would have to conclude that it is not representative at all.