More ounces and stronger feasibility studies are a TO defence because when it comes to takeovers they are defended in the end by expert reports which look at the calculable value of the assets not the market value or the offer value.
And I don't understand all the winging about the mine not starting up, WAF is one of the closest gold developers on ASX to mining. Based on company representations first gold is due in 2020. It's really up to individual investors to determine for themselves their own investment horizons and how likely they think the company can hit targets.
People should try and understand that critical decisions made now in selecting the type of building contract for the mine can have big ramifications down the track for costs and risks.
The company is proposing to engage a EPCM contractor rather than a EPC contractor meaning the company probably in league with one of the short listed financiers are willing to take on more construction risk in order to reduce the capital costs of the project.
The basic difference between a EPC and EPCM contractor/model is
1) that an EPC contractor negotiates and signs agreements with suppliers whereas in the EPCM model the company negotiates and signs agreements with suppliers with the advice of the EPCM contractor. Also suppliers are chosen solely by EPC contractor with no input from the company whereas in the EPCM model suppliers chosen by mutual agreement of company and EPCM contractor.
2) On-Site construction contracts are negotiated & signed solely between EPC contractor & supplier whereas in the EPCM model the company negotiates and signs agreements with contractors with the advice of the EPCM contractor.
3) Scope of supply. EPC Contract only as good as the original project specifications presented during bidding process. Changes to specifications / scope of supply after awarding of contract can be expensive, due to EPC contractor’s sole contract with company and company's inability to “Shop Around” for multiple quotations from independent contractors / suppliers.
4) Equipment Supply Warranties are negotiated by Suppliers & EPC contractor and issued to EPC contractor directly.Warranty to company from EPC contractor is negotiated separately between company and EPC Contractor and issued to company by EPC contractor. In the EPCM model warranties are negotiated individually with each supplier by company with EPCM contractor’s advice and are issued directly to company from the suppliers and contractors.
5) Process Warranties are negotiated by suppliers & EPC contractor and issued to EPC contractor directly. Warranty to company from EPC contractor is negotiated separately between company and the EPC Contractor and issued to Owner by EPC Contractor (Usually in the form of a performance Bond). In the EPCM model process warranties are negotiated individually with each supplier by the company with EPCM contractor’s advice and issued directly to the company from the suppliers and contractors (Usually in the form of a Performance Bond).
6) Construction Site Safety (General Liability Insurance, Workman’s Compensation, Accident, etc.). Site safety is solely the responsibility of the EPC contractor and sub- contractors in accordance with contractual agreements. In the EPCM model site safety is monitored by EPCM contractor but site safety is the legal responsibility of company and sub-contractors in accordance with contractual agreements.
7) Permitting is the responsibility of the EPC contractor with the exception of permits that are required by law to be issued in the name of the company of the project. In the EPCM model permits are issued to the company directly with the EPCM contractor assisting in filing the necessary paperwork.
This is an important one
8) The cost risks for a project are borne by the EPC contractor. Any cost overruns, for equipment and/or services within the EPC contractor’s scope of supply, are for their own account and can not be passed onto company unless “change conditions” occur or contractual agreements to the contrary. In the EPCM model the cost risks for a project are borne by the company. Any cost overruns, for equipment and/or services are for the company's account (with the exception of fixed price supply contracts) i.e. Final equipment pricing bids / on site cost higher than originally budgeted.
The list goes on and on to include how project cost savings are treated, how day to day expenses are treated, how project financing, legal costs and administration are treated.
The treatment of project financing under each model is interesting as in the EPC model project financing is usually accomplished by substantial down payment by company to EPC contractor and the remainder of the fees issued with Irrevocable Letter of Credit (with partial payments) from company to EPC Contractor. This requires company to have all financing in place at the onset of the project so as to secure letter of credit (LC).
In the EPCM model project financing can be any combination of down payments, open accounts, and Irrevocable Letters of Credit from company to suppliers / contractors; whatever method is negotiated during contract negotiations. EPCM contractor will assist in all negotiations on company’s behalf. This allows company to have partial financing in place at the onset of the Project with the remainder available as needed, dependant on contractual requirements.
As you can see building a mine is a complex process where risks and rewards are determined by what approach is taken. WAF has signalled that it is electing to take a risker approach where it is taking on more of the potential liabilities to reduce the cost and possibly make the funding options more flexible.
The announcement of the EPCM contractor seems delayed based on Richard Hyde's comments at the Beaver Creek conference saying they would be decided in the next few weeks.
I guess the decision of not having a "turn key" EPC contactor will also have to be made in close collaboration with the short listed financiers. This are difficult and complex negotiations the company must be going through and they have big implications for the success of the project so I think as investors we need to be grown up about the way we invest. If you are looking at these companies as prices on a chart or horses running around a track you are looking at them the wrong way IMO. They are businesses in the real world and in the case of WAF and other companies doing business in Africa, they are businesses doing business under challenging circumstances. The reward to shareholders from successfully building and operating this mine will be large IMO, despite any share price fluctuations that happen between now and then but the risks still remain high until the project is built and running near enough to specifications. Esh
(20min delay)
