Dwarves and Middle Earth, page-34

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I generally like your posts and this debate has helped me to develop my thinking on GRR but I fundamentally disagree with your analysis on this occasion.

For anyone that it interested, here is my assessment.

For a start, look at how the balance sheet changed over 2016.

Current Assets – Increased from $230m to $232m

There was no material change in CA.  Although inventory decreased in value by $45m, this was off-set by increases in cash and term deposits of $29m and trade receivables of $21m.

Current Liabilities – Decreased from $37m to $36m

Again, no material change.  Notable changes are borrowings increasing from $5m to $6.5 but tax liability decreasing by $4.2m.

Non-Current Liabilities – Increased from $58m to $60m

Increase in provisions of $7m (relating to employee costs and remediation) offset by $5m reduction in borrowings.

Non-Current Assets – Increased from $112m to $196m

The $84m increase in non-current assets is the key to understanding what has been happening with GRR.  Given that liabilities were relatively unchanged and total borrowings reduced, the $84m investment in assets could only have been funded through operating cash surpluses (in fact, according to the financial statements, operating cash surplus in 2016 was $122m).

The increase in net assets is primarily attributable to a $41m increase in plant and equipment (mostly relating to the new mill and tailings storage) and a $46m increase in mine properties and development (relating to deferred stripping).  The large investments in plant and equipment should now be coming to an end and will no longer be such as large drain on cash flow.  The capitalisation of deferred stripping costs is more concerning but, if accurate, this should be less of a drain on cash as they gain access to the ore body in the north pit.

So the 2016 results show us that GRR is capable of generating substantial cash surpluses at an IO spot price below US$60.  Obviously the results for the first six months of this year are going to a shocker but, looking forward, if the stars align GRR will be banking loads of cash.