Ann: Mt Morgan Ore Reserve Increases 16% to 1.4Moz, page-26

Nordesmic

I am not saying DCN will not be making money in the first few years - in fact I have said they should. My point was that the average grade of Gwalia is far higher than DCN's reserves. I really can not see DCN with its high stripping ratio for its pits and its good but not exceptional underground grade getting AISC lower than $1050-1100 during the good years while producing 180-200k ounces pa. That is my guess, and not based on a rigorous comparison against other comparable mining operations (not sure if there any involving pit and underground mines).

I accept your point that Gwalia is a deep mine and hence the cost per tonne of ore production would be higher than at DCN. But offsetting that is the much higher grade which means that they mine less than half the tonnes of ore and currently process less than 1m tonnes of ore pa (milling capacity is 1.2-1,3 tpa) than what DCN will have to do to achieve 200k ounces. For instance in 2017-16 they mined 679kt at12.5 g/t and milled 711kt at 12g/t to produce 268k ounces at as AISC of $802/ounce while DCN will probably need to process around 2.8-3m tonnes. Basically the cost of both mining and processing a much lower volume of higher grade ore will result in a very low cost operation versus the much higher mining and plant throughput required by DCN to produce at best 180-200k ounces in the first few years while they have access to higher grade underground ore.

Mining costs at Gwalia are expected to decline further once they have completed a few projectes including the Gwalia mass extraction project - however in about 4-5 years time the ore reserve grades are likely to be lower than the current level and these projects at that stage will basically ensure that that their costs stay competitive as they go deeper. Gwalia does get affected by earth movements, so it is more dangerous - so far things are OK.

My main concern with DCN at this stage is its short LOM at 180-200k ounce pa level, especially given that during much of that period the profits will go towards paying off debt. Hopefully future drill results significantly extent the forecast peak gold production period.

loki