Obviously it is a very time to be a unhedged producer with an expanding production profile with cash-cost stable and low capital development mines. This is what DIO has.
It was interesting to note in last week's announcement that the total cost of the (ie including capex) for the approx 200k oz of recoverable gold from the existing South Kal mine reserves was $630oz. This is a relatively low total cost - for comparison, DOM, which has very low cash cost, has averaged a total cost over the last 6 months of about $590 (not counting Royalty), although maybe DOM's cap ex schedule will decline over 2009. On an annualised basis, South Kal therefore gives cashflow at current spot prices of $30 million a year. In the short-term (12 months), Dioro seem to be looking at defining a reserve and cap ex for Shirl undeground (inferred currently 100k oz at 4.4g/t). This could conceievably come on line in early 2009 if the economics are positive, but its too early yo tell.
Regarding Frog's Leg, two things I think are important. First is what the impact of bringing 150,000 oz or so of inferred resource into the reserve will be. This ore is currently rated as waste in the mine plan. I would expect to see an update on this within next couple of months. Assuming modest cap development is required and ore blocks are such that mining costs are OK, you probably add maybe 15c a share in value. Second is the deep drilling results. We just to have to wait for results, but potentially good results could add significant production ozs from years 5 onwards so as to maintain a production profile of 100,000 oz for Frog's Leg. It was interesting to note that the grade of the key holes from the September results average about twice the overall resource grade.
angus
DIO Price at posting:
0.0¢ Sentiment: None Disclosure: Held
