Resignationof Murray – very irresponsible to take the position in the first place. I thinkwe are all paying for his act. Very poor demonstration of leadership….shouldhave had the guts to stand by his decision. He has let us all down.
I thinkDunbar has been admirable, but I think Gascoyne needs a hard-core productionman now. Dunbar’s resignation would have been bad for the share price.
ClearlyDunbar didn’t have the commercial oversight to understand that a rights issuehad to happen. How he could have missed the large liability of $28 mill bogglesthe mind. Had he anticipated it we could have had the rights issue at a muchhigher share price. I guess a large contribution to this was the resignation ofthe CFO…obviously he was not on top of his remit.
Operationalissues:
Underperformanceof golden wings pit
A lot ofwaste to clear interfering with mining flow
Suboptimal speed of digging which means that there is not enough stock piled oreto obtain optimal blend for the mill.
Peggingof the mill grates slowing down milling
Heavy andhard ore slowing down milling
I don’tthink they will reach commercial production until all these issues areresolved. I am guessing that they will produce ~15k ounces in Q2. They may havesome milling runs in December where they produce at the rate of 25k perquarter….but I think their ounces will be lower than lowest guidance of 19kounces. Even at such low production, they can generate positive cash flow fromoperations. My simplistic modelling is saying $3.5 mill after admin andinterest.
Providingthere are no further FUs, I think March could look encouraging. I still thinkthey will be a little lower than 25k ounces. They will have the benefit ofstockpiles to choose from, higher grade, pegging fixed hopefully and softerore. I am modelling $6.5 mill cash from operations after admin & interest.
In Q4, Iam hoping they finally start producing at 25k ounces.
Theimportant thing that they must achieve is positive operational cash flows andthis all depends on managing the ramp up well. For this you need an excellentoperations team. I get the impression that Gascoyne has lacked this so far –perhaps all part of a business emerging from exploration into production. Ihope Le Messurier gets out and cracks the whip.
Fortunately,Gascoyne have $18 mill cash with $5 mill from the rights still to come. Theyalso have significant cash commitments such as a deferred contractormobilisation payment of ~ $4 mill, I think last payment for purchase ofDalgaranga of ~$5 mill and loan repayments. The loan repayment in FY19 are $15mill, FY20 $30 mill, and FY21 $33 mill.
There isnot much room for error – so execution of ramp up is absolutely critical. Ifthis fails…then it is curtains. But, providing cash from operations growsquarter by quarter they should be OK. At a rate of 25k ounces per quarter, theycan generate ~ $7mill after admin and interest which will be enough, togetherwith opening balances, to take care of the loan repayments.
The restof FY19 will be critical as loan repayments are less onerous than subsequentyears which will be an opportunity to build up cash reserves for FY20 &21.
I may getcold feet and sell – I hope not and I hope they turn things around. It ispossible providing they don’t have bad luck.
What Idon't understand is why they started with Golden Wings when they have otherdeposits with better grades and less trucking distance. Gilbeys South andPlymouth are both nearer and appear to have better grades. Wouldn't it makesense to reduce risk and build momentum by using better grades to begin with.
Also, Iam annoyed that Dunbar was, at one time, spruiking a low cost mine with 110kounces in the first two years. Then, the story changed to overburden costsimpacting earlier production creating an AISC of $A 1300. I think Q2 AISC willbe more. What they needed all along was someone who had done this all beforeand knew exactly what the problems would be and how unforgiving the market canbe if you don't deliver on your claims.
They cansucceed ….but they have to be aware how close they are to oblivion.
