Ann: Sol Plaatje Update, page-4

Well it's not bad news but I'm not yet convinced. After the initial $70k WWI has received a further $100k which sounds good but my rough back-of-envelope calculation based on 2g/t and a gold price of $US1100 or better give me more like $US300k so we're a long way less than I'd expect.

The problem is that while we know the rough outlines of the contract, we don't know some obvious details. So for example I'd guess the contracts are all in Rand (given that's how we're getting the money), and given gold is a bit lower in ZAR than when the contract would have been signed, WWI may be getting less money. Also, while 2g/t is the head grade the question is what's the total at the end of the day. Note we only know how many tonnes have been processed not how much gold has been produced.

Then we get this sentence:

In the interim the operation is continuing pursuant to the term sheet on the mutual understanding between the Company and its contractors that adjustments will be required under the final agreement to accommodate the likely expansion of the tonnage recovered at lower grade.

This hints at the broader problem. The contractor gets paid for tonnes processed, and if it looks like the head grade isn't good enough for them to get their bonus payment, there's no incentive for them to go for higher grades. Remember they get a cost-per-tonne, THEN WWI gets bonus THEN they get bonus. So if they decide "hey let's process more tonnes and forget the bonus", so they push to process more at lower head grade, they get more money, WWI gets less.

Having said that, even at 9000t/month WWI pulls $1m a year which is a good start. But, in terms of revenue, they're a factor of two less than I would expect. My guess is that, as the contract stands, they're losing out. You could imagine with the new deal, the contractor gets less money for processing costs, but WWI and the contractor BOTH start getting bonus payments at the same time (and split them 50:50) so there's an incentive for the contractor to be more efficient.