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40.8¢ dacian gold limited

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Davisite

10,813 Posts.

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23/03/19

08:37

Post #: 37860061
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Originally posted by eshmun ↑

"Well if SBM is any guide the market will go spastic at any downgrade to guidance."

IMO SBM's announcement today was more than a guidance downgrade. It cast doubt on production beyond FY2019 by omitting a lot of information. They just finished a major study regarding the long term future options at Gwalia but weren't even capable of laying out a credible story with respect to the nearer term production for 2020 to 2022. The uncertainty created in that announcement is going to haunt that company for a while and until more detail comes out it could represent a potential existential issue for that mine IMO, ie costs could rise very quickly potentially causing the mine to shut after a few more years of production. The promise of a long life beast might be just that, a promise.

If the problems at DCN do originate from the grade at Jupiter (which is really the only problem we have been alerted to so far) this could negatively impact group AISC but Westralia should support the positive economics of the mine while they work to resolve that issue. The guidance downgrade might just be a result of what we already know, ie lower grade in the basalt hosted part of the Jupiter deposit. It might just be as simple as waiting until the open pit is more fully developed into the syenite host where the grade starts behaving more in line with feasibilty and everything gets back on track. The Dec 2018 quarterly showed a mined grade of 0.9g/t vs a reserve grade for the entire deposit of 1.4g/t. This seems the most likely scenerio to me considering what we have already been told.

Alternatively it might be more serious and the grade at Jupiter might not reconcile even in the syenite which would have a long term impact on the AISC assumptions for the project, ie the group margins won't be as attactive as we expect and the project might be far less profitable than feasibilty suggests. I'd be very suprised however if problems like these would lead to the project losing money and sending the company cap in hand for more funding any time soon. It's more likely IMO that if the grade problem is transitory it will just end up being resolved as mining progresses. If it's not transitory then shareholders are stuck with a less profitable project but how much less profitable will be the question. The rise in the gold price will have acted to cushion some or of the grade loss problem if the grade issues at Jupiter are something the company can't come back from. I'd be pretty disappointed if this were the case as it would point to more sloppy drilling and reserve estimation in our industry. We are supposed to be industry leaders in mining and it would really be a disgrace if another project gets badly effected by a processes that is basically pretty straight forward. It is not rocket science to drill holes in the ground het them assayed and then build an open pit gold mine model from the data. We train proffesionals to do these jobs so you would need to start questioning from an industry perspective why so many balls ups and what about the people who work for the banking syndicates, surely they don't lend out hundreds of millions without having profesionals doing due diligence on these projects.

As far as the Jupiter open pit mining area goes the average strip ratio from the feasibilty study is 7.5 and based on waste and ore mined in the Dec 2018 quarter the open pit was running at strip ratio of about 3.9 and according to the quarterly -

"The quarterly average of 5,838 tpd of ore mined during the December quarter exceeds the Feasibility Study design levels from the Jupiter open pit."

so the mining rate at the open pit was up to schedule in the Dec 2018 quarter.

Even with a grade undercall this is not like GCY. GCY had the triple whammy issue of the grade not reconciling, very high strip ratios at Gilbey's in the first two years and the requirement for very high rates of material movement to keep in line with feasibilty. The DCN Dec 2018 quarterly reported that they were keeping to feasibilty level mining rates. Also GCY didn't have the abilty that DCN has to blend higher grade UG ore with lower open pit ore. In the worst case scenerio DCN can blend to a desired grade at the cost of lowering mill through put, ie lower production, ie it is more of flexible operation with far less risk of going broke. Under the worst case grade scenerio the mine should still be able to make money IMO, just maybe not as much as orignally invisioned.

So my guess is that it is all about grade at Jupiter and how serious the problem is will depend on whether the grade problem is tranistory or not, ie whether it resolves itself once the pit moves to mining the underlying host rock or not. This is all just speculation based on the information we already know so maybe totally off the mark, but it's better to be prepared with some possibilties before the announcement comes so you have a yard stick to measure against what is actually reported and take action if necessary. Hopefully it is as minor as the first scenerio I proposed (ie a transitory grade issues at Jupiter). How they prove that the grade issue is just tranistory however is a another matter and a potential cause of ongoing uncertainty unless they give a good explanation supported by grade control drilling. Don't you love these gold miners, never a dull moment. Esh

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This is all possible Esh (I agree 100% on the never a dull moment part), but if Jupiter is the cause why did we get told less than 2 weeks ago that everything was fine? I only hope we get a full and frank account of why we are in a TH and what is going to be done if something hasn't gone to plan.

DCN Price at posting: $2.45 Sentiment: Hold Disclosure: Held
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