The operating costs will undoubtably remain high while the Syama UG development ramps up production but the NST quarterly result yesterday highlights why Syama is potentially going to be such a great mine.
Most of NST's Kalgoorlie operations (I'm not sure about Jundee or Pogo) use a narrow vein paste fill mining method where stopes are filled with a type of cement made from tailings, sand and cement. Once the stope is mined and filled it can never be accessed again. It seems to me that NST have been forced to start mining more marginal ore (hallow mineralisation) to their high grade veins in order to try and meet their ambitious production guidance targets, the net effect being a big increase in their operating cost particularly at their Kalgoorlie centre which recorded an AISC of $1,406/oz. IMO this result which the company claims to be a one off will actually be a continuing feature, ie needing to chose to sterilising reserves or leave them in the ground. The company at its Kalgoorlie mines is in the unenviable postion of having to make the choice between grade and production. With the higher gold price they have elected production but if the gold price were to fall all that remains is to leave the peripheral low grade ore in the ground forever which means an inevitable fall in production ounces. I think NST's quarterly result proves what I have been saying about the opaqueness of NST's long term production and cost guidance as per these recent posts of mine where I compare NST's mines to RSG's UG Syama developmemt.
Thankfully at Syama UG we will not have that problem as ore drifts/stopes will remain open after ore extraction. We will be able to return later, if wanted, to extract lower grade ore that exists in the form of overdraw from higher previously mined levels in the SLC . Should the gold price spike for example this unmined overdraw could represent a significant extra source of production, a luxury that many of these narrow vein miners just don't have due to their mining technique.
The RSG quarterly will probably show up a good production result, as we already know (of 74kozs), but high operating costs which we already know arise from Mt Wright treating stock piled and remnant UG ores and the fact that the Syama UG developmemt is not fully ramped up.
I'll be looking for discussions around the grades and recoveries from the Syama UG sulphide ore and conformation that about 180kt was actually mined as indicated in previously published charts. I'll also be looking to see if they change their guidance in respect of the March 2019 quarterly ore production for the Syama UG which I estimated to be roughly 355kt from the December update. Also I'll be looking for more information on the starter pit at Tabakoroni, in particular expectations in regard to March 2019 production, ie indications of oxide ore remaining, strip ratios etc. For Mt Wright I'll be looking for a confirming statement that collaborates previous statements suggesting that mine will continue to produce at normal production rates out to the June 2019 quarter. The actual margins from that operation don't concern me as long as they remain positive and not a drag on operating cash flows.
The market in it's enigmatic style might sell down the share price based on the headline operating cost numbers alone, as is its unfortunate habit of not being interested in wanting to read in between the lines of a story. I suggest that there is not enough information yet to draw a conclusion on Syama UG so I maintain a very postive outlook based on the convincing grade, scale, longevity, and flexible of mining method that this project is likely to bring to market. So IMO any sell down based on a knee jerk reaction to headline operating costs should be bought. The real key to unlocking how good, bad or otherwise this compamy is won't be revealed for at least another two quarters.Esh
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