Reply from Linda10 Mar 2016 11:26
Bang goes that theory ! Anyway, she tells me we've eliminated the need for a tunnel through life of mine - didn't know that.
"As you rightly recall we determined that the construction of the tunnel was not required for the initial 10 years of the project and a technical solution has now been established to remove the need for the tunnel altogether. As I am sure you are aware the NPV (net present value) of a project is a function of the initial investment, the flow of revenues and the discount rate at which the “present” value is calculated. Therefore the lower the initial investment the higher the NPV of a project, so eliminating the tunnel cost has added value to the project.
The term “Initial capital” in our announcement refers to the capital expenditure and construction work to be completed during the first three years of the project. This will bring the production and processing capacity to capacity. At a later stage of the project additional capital expenditure is required; for example, after the ore in the open pits has been extracted, underground mines are to be developed beneath the open pit area. These costs are treated as capital for accounting purposes.
The work on optimisation of the study is continuing. The fall in material and machinery prices (for example fuel and cyanide costs)and the devaluation of the Kyrgyz currency will have a positive effect on the economics of the study. As and when the work is completed we will, of course, communicate the results to our shareholders.
Numis has commented as follows:
“..but capex weighs well above our expectation - The capex estimate of US$684 million was more than double our previous estimate of US$320 million, however, we believe that there should be a number of opportunities to optimise this given the deflationary pressure on input costs and the highly competitive environment for mine development work amongst contractors. Should the company be able to reduce capex by US$150 million then this would increase our NAV by 30% to US$494 million and increase our IRR to 23%.”
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The current DFS prediction of IRR @ $1250 an oz is 15.3%, so a step up to 23% would be significant. Personally think we can jiggle this higher.
Anyway, interesting comprehensive reply which she told me was delayed because she was travelling. Don't think that was sightseeing.
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