WAF valuation, page-24

Nordesmic, youquestion the mill operating cost assumption… examples are provided to validate.

 

You question theexamples and suggest alternatives… alternative examples are provided (SEMAFO -Mana).

 

You then go on tosay that the example you suggested isn’t actual a valid reference (you shouldhave checked this before you suggested it).

 

You then providethe cost table from the WAF NI43-101 that provides a breakdown of the millingcosts used in the Reserve estimate for the various material types.

This table is agood starting point to understand the actual milling unit costs that WAF arelikely to incur.

 

If you look atthe unit cost for different material types and then apply these costs to themill feed schedule as stated in the NI43-101 (WAF: “It is estimated that the average feed composition to the plant willcomprise of 58.9% oxide and 41.9% fresh/transitional material”) you get aweighted cost of $15.45/t as per table below that provides a summary of this.

It is then important to read Section 17 of the NI43-101 where WAF state that the design basis for the mill will be suitable for the first four years of production. After which the percentage of feed from fresh material increases, increased energy is required to break the rock, throughput drops and by the very nature of fixed costs the reduced throughput results in the unit fixed costs going up.

Let me simplifyit, and this is all from the WAF NI43-101 and not based on my own assumptions:

 

 

1.            Themilling unit costs WAF use in their cash flow model =         

 

$12.50/t

 

2.            Thetonnes weighted unit costs (58.9%/41.9% blend) using WAF’s cost estimate foreach type of material =

 

$15.45/t

 

3.            WAFstate “From years 5 to 11, the feeddeviates from the 58.9/41.9% design blend with higher design specific energiesand reduced throughputs evident during those years”.

 

If this doesn’tsway you, you just have to look at the mill indexes stated in the NI43-101 of>20kWh/t for fresh rock and you can make a reasonable assumption that themill throughput will be less than the stated throughput (as the design blend is only relevant to years 1-4) and the milling costsare going to be significantly more than $15/t. 

 

So, my point isthis, WAF use a spread of unit milling cost to complete their Reserves ($11.30/t - $20.42/t), they then use a significantly lower unit milling cost in their cash flow model which doesn't align with their blend schedule. And by WAF’s own admissionthe blend is going to be significantly different to the design blend for 7 outof 11 years that project is in operation. 

 

Another thing toconsider is that the focus of exploration and grade control drilling over thenext 18-24 months will be to bring online more M1 underground high grade. Thisto is fresh rock and will further sway the milling unit costs higher.