Ann: Integration Update , page-25

I also agree,
That is still a big enough expenditure and will probably result in some additional discipline towards targeting more prospective areas (more efficient use of cashflow).

Let’s not forget, what we already have in high grade resources;
From pre merger detailed resource statement for Mt Monger (available on pg 5 of ann 13 Dec 2012)
Daisy M has 618koz at 12g/t
Haoma (excluding Haoma west) has 451koz at 11.9g/t
That’s over 5 years worth of ore (at 200koz/yr) at a resource grade of 12g/t.
Mined average head grades would be lower if blending lower grade development material, but that would also extend mine life and should still be very high grade.

Total Mt Monger (pre-merger) was 1.7Moz at 7.4g/t
That’s 8.5 years worth of ore (at 200k/yr) at 7.5g/t
The actual blended grade is currently lower when blending lower grade stock pile and open pit ore but that would extend mine life beyond 8 years.
Then there are the resources/reserves from the merger (total 6.6mill oz resource and 1.8mill oz reserve).
Where’s the need for an aggressive cash burn on exploration?
A disciplined amount for resource to reserve conversion with some allocated to extending existing resources is all that is needed.
A much smaller amount for Greenfield exploration is sufficient for quite a few years.

As for margins on the lower grade blended ore, they do not necessarily drop because of lower grades.
If the grades dropped significantly as a result of lower grade u/g ore only then it is reasonable to expect a drop in margins.
However when blended milled grade drops as a result of blending stockpile material or open pit ore, it is quite possible that margins can increase.
For example, 2g/t open pit material could easily give a higher margin than 7g/t u/g ore.
Regis today announced a reserve upgrade with 1.7g/t forecast to give total cash costs pre royalties of $640/oz.
If that material was blended with Mt Monger u/g ore averaging 7g/t, cash costs per oz might fall after allowing for total costs including u/g development work even though blended grade might drop to 3 or 4 g/t.
1g/t stockpile material could also give a higher margin per oz so the lower grade blended ore might have a lower cash cost per oz than the higher grade u/g ore.
To conclude that lower blended grades automatically mean higher cash costs is not correct.

I think we have ample resources to justify the expansion of Randals that is being investigated.
That should allow for higher production from u/g high grade ore as well as open pit material.
That should push production above 400,000oz per year without necessarily increasing overall cash cost/oz despite the lower ave head grades.

It also would make it very prudent to cut down on unnecessary exploration expenditure now so that any expansion can be paid for from cash on hand.
We are much better off building cash and funding expansion than spending to increase an already strong resource/reserve base.
In a year or so when we hit full production (after expanding Randal’s as well) and there is stronger cash flow and cash balance, then there will be ample time to increase exploration expenditure to expand resources and plan the next expansion or new production base.