Ann: Equity Raising Investor Presentation, page-7

Ah, if only it were that easy.

I hear what you are saying.

Let's say, for argument's sake, that they managed to hedge their entire known reserves (prior to recent drilling) at a gold price of $1,600.

AISC ($1,186 - $274 mill refurb) = $912.
Margin = $688/oz.
$688 x 63,965oz = $44m.

They need to convince a lender to stump up $18m ($12.5m for the mill refurb + $5.5m to get the ball rolling at Julius). Not a massive issue, as they have hedged their entire output, so the lender would be confident of full repayment. They go mining and in <2 years, they reach the end of their initial LOM. What then? They have $20-25m in the kitty (after their full loan repayment). They continue drilling Julius and hope for an extension to the LOM. They drill their other targets and hope to build their ounces.

Alternatively, they remain wary of rushing into production at Julius. They analyse the historical problems at Bronzewing (and POG aside) realise that relatively low head grade processed (1.5 g/t) was the big problem. They implement a strategy to target a head grade of 2 g/t + and sufficient reserves (300,000 ounces) to guarantee upfront a LOM of at least 4 years, before going into production. In other words, they bring forward the exploration risk. Another point to consider by building the reserves earlier on is the mill capacity. Under the first scenario, Bronzewing would only be operating at 50% capacity for the 1.5 years at Julius. Increasing the mill capacity would reduce their production costs.

At present, their three-pronged strategy is to:

1. Increase reserves/ resources (Julius and Orelia).
2. Explore and drill known targets.
3. Work their conceptual targets.

I agree with step 1. Where my thinking deviates relates to steps 2 & 3. I would use some of the $100m plus FCF generated from their 300,000 ounces to work their other targets and explore for new deposits on their tenements. They should focus on Julius and Orelia now, update their reserves, canvas financing options and transition into production. Finding a new deposit can wait for mine.

I guess it comes down to a preference on management styles and strategies employed.