Low ball offer risk26 Oct 2018 08:20
Hi 1234567!
Thanks for the reply. My comments in turn would be:
1. Rains indeed heavy in Mali this year - other miners have commented on them. No other reports of this kind of pit wall problem, though.
2 Bridge repair - no real problem, just a bit of time and money to achieve.
3. Key question A: does the fuel to the plant also travel across this bridge, and is it currently strong enough to take the diesel tankers? If not, gold production could soon be halted entirely.
4. If diesel can still get to the plant, then gold production can continue with ore mined from the other pit, though of course production quantity will be hit in Q4. As a rough working figure, I'm assuming annual production of 90,000-95,000 ounces until company informs otherwise. AISC will go through the roof as a result, of course, so free cash flow generation will be very limited. No dividends, no buybacks, maybe even cuts to the exploration plan.
5. Fixing pit wall? Here's where it gets complicated. It could involve a cutback to one wall, in which case I agree with your rough estimate of costs. But the pit walls were steepened 10 degrees from the original Goldfields plan by Hummingbird. If that steepening was a mistake and now needs to be rectified, then the strip ratios will shoot up. (Think of an open pit as an inverted cone, and calculate the difference in volume (i.e. material to be moved) between a 50 degree slope angle and a 40 degree one!)
5. Key question B. Any water ingress into the pit? Is it flooding?
6. Key question C.. How has the tailings storage facility (TSF) been doing through these unusually heavy rains? Any leakages?
Overall, I still have a little money left in here (in my son's JISA), and it's too late to sell those shares now. But I'm not in a hurry to reinvest.
I wouldn't now describe a low ball takeover offer from another goldie as a risk. I'd regard it as a shot at redemption. Survival for Hummingbird is far from guaranteed from here. It certainly would help all round if Dan Betts resigned and was replaced by a competent CEO.
Finally, its very odd that I mention in public that the Dugbe licences are expiring at the end of the year, and that no progress has been made on the MDA.and that is immediately countered with a rumour that the exploration licences have been extended to 2040. But even if that's true, Dugbe is worthless without the MDA. The exploration licences merely maintain the current useless status quo.
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