Good article commenting on recent Judge’s ruling in the U.S.
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Hi Hulk, Done and Jimmy P,
It’s definitely an interesting set of circumstances. Do you ship maybe a dozen truckloads of ore now, and leave that $100,000 per truckload “EXTRA BONUS” on the table ($5,000 per tonne times 20 tonnes per truckload), in order to put some runs on the “promotional scoreboard” or do you wait for the big bucks and that extra $5,000 per tonne associated with “floating” your own ore. How many junior producers would love to have this dilemma?
The “in between” solution to maximize the economics might be to get management’s pledge to keep us posted on the tonnage and grade of the ore being stockpiled, thereby keeping that extra $5,000 per tonne in play, and let us do the math. I had no clue that our ore would respond this well to “froth flotation” followed by either “CIL/CIP” or DIRECT SMELTING such that this $5,000 per tonne differential became a reality.
WHY IS THIS DIFFERENTIAL SO LARGE?
You need to remember that in mining, even if you have an ore grade that is through the roof, like it is at the DL2 vein, 99.99% of the material in that ore is still worthless. One tonne of gold contains 1,000 “kilograms” of gold. This represents 1 million (1,000,000) “grams” of gold per tonne. Even if Auryn were to be mining 100 gpt gold ore, the other 999,900 grams (99.99%) are worthless.
Enami doesn’t particularly want to store all of that worthless material at their facilities. If a miner, like Auryn, is willing to remove (through flotation) and store (in tailings facilities) a lot of that worthless material on their property, then Enami is willing to pay handsomely for this concession. In the case of Auryn being willing to process their ore through “flotation” and store those “tailings” at the ADL, Enami is willing to pay an “EXTRA” $5,000 per tonne of “concentrated ore” that Auryn ships to them. This represents an “EXTRA” $100,000 payment per truckload OVER AND ABOVE THE HANDSOME AMOUNT OF MONEY ENAMI WAS WILLING TO PAY AURYN FOR THEIR EXTREMELY HIGH-GRADE UNCONCENTRATED ORE.
Auryn management and any potential financier interested in funding the construction of a “froth flotation” facility for Auryn, would have to do some math. For example, if the plan was to construct, let’s say, a 150 tpd “flotation facility” and the cost was $5 million (just a guess-wait for the actual numbers), then Auryn would have to process and ship ($5 million divided by $5,000 savings per tonne) equaling 1,000 tonnes of ore to cover the CAPEX of the facility. If you divide this 1,000 tonnes figure by 20 tonnes per truckload then you’d get a breakeven of about 50 truckloads of concentrated ore being shipped to payoff the CAPEX of the facility ASSUMING THESE ASSUMPTIONS ARE ACCURATE.
If you factor in the distances to the 2 nearest smelting facilities of Codelco/Enami (Las Ventanas and Catelones, which are about 125 Km or 77 miles one way or about 250Km and 154 miles round trip) and assume that Auryn could make 3 roundtrips per day, including loading and off-loading, then this would represent about 17 days of production to pay off the facility. Assuming 2 roundtrips per day would leave you with about 25 days of production to pay off the CAPEX. Don’t forget that there are also “OPERATING EXPENSES” or “OPEX” to consider. This would include things like reagent (xanthate) and water consumption. The point is that when the “DIFFERENTIAL” is $5,000 per tonne shipped, then the appeal to any potential financier would be obvious.
A significant cost in mining has to do with the TRANSPORTATION COSTS needing to be paid to get your ore to the processing facility. When you’re shipping already concentrated ore (through flotation), a lot less truckloads need to be shipped, and a lot less trucks need to be purchased, in comparison to shipping unconcentrated ore. These savings would need to be added to the “DIFFERENTIAL”.
From a VALUATION point of view, with the addition of a “froth flotation” facility as well as the new on-site assay lab, the “value” of all of the various components of the ADL Mining District, the 6 Main Veins, the potential porphyries, the LDM, the skarns, breccias, mantos, etc. would all go up individually and in the aggregate. If deemed ECONOMIC, the timeframe to put these other deposit types present at the ADL would go down with an on-site flotation facility and an on-site assay lab. This would then increase the NET PRESENT VALUE of these assets.
The key thing to keep in mind is that the construction of the flotation facility is an OPTION. The WORSE CASE SCENARIO involving making a fortune by selling 70 gpt “gold equivalent” ore, at a price of gold approaching all-time-highs, to Enami’s smelters is still on the table.
The resident critic on THEMININGPLAY investment forum has “guaranteed” that Auryn will never find a willing financier for this project and that Auryn will undergo massive levels of dilution from the need to sell Auryn shares at all-time low share price levels. Think about it for a second. The new Auryn BOD has already unanimously approved the corporate resolution to proceed with this project. Wouldn’t you think that they’ve already seen to the details of any financing prior to making that unanimous decision?
In a recent quarterly update, management seemed extremely confident that they could produce at an INITIAL RATE of 40 tonnes per day once they had intersected the DL2 Vein and could produce from 2 working faces on level 3. That intersection occurred about 9 and a half months ago. This “EXTRA BONUS” alone, in regards to floating the ore on-site, all of a sudden represents $200,000 per day in “EXTRA” profits.
The question then becomes, what will the daily PRODUCTION RATE be on the day the new facility is commissioned, in “X” number of months, when the POG is “Y” dollars per Troy ounce.
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I don’t know but for a guy who likes to parse through the wording of AUMC’s press releases like its the bible, you continue to conveniently ignore what the company is disclosing:
“Management is also actively engaged in discussions and presentations with potential investors for financing the construction of a milling facility.”
So are they lying (again) or just bluffing with a financing already in hand? You think someone is going to offer financing before they even have permits in place? The permitting process will take a minumum of six months. I don’t think they are bluffing. I honestly have no idea what is driving their decision (based on a 270lb sample!!!) but, if past is precedent, I’m not going to assume its a positive development.
Again, for someone who has misled investors on this board for sooo long, with predictions that have been sooo off the mark, it’s stunning to me that you don’t take the time to pick up the phone and speak with Maurizio. I’ve met with him several times and he’s very transparent. You don’t need to dig for inside information but I’m sure he will address many of the points you endless speculate on. Based on the length of your posts you’re clearly not lazy. I can only assume you’d rather lean on your rosy scenarios vs. the cold, hard, facts of what is really going on. The polar oppositve of prudent investing.
As far as hypothetically gaming out this option between the worst case scenario vs. building their own plant. If they raised $10M today you’re talking about a minimum 50% dilution to shareholders (being generous). Does losing out on $5k a tonne for a few months and then using the proceeds to build the plant on a non-dilutive basis not seem like an obvious choice? AUMC has decided not to take this route even though they have been promising investors for years that they would. Whether the differential is $5 or $50k a tonne shouldn’t matter. The stock WILL NOT go up from here until they have the financing in place. If the obvious choice isn’t being pursued investors should speak to the company to understand why.
Doc,
Admittedly I didn’t read the entirety of your last post, but the above quote stuck out as “questionable” to me.
I’ve been an avid fantasy football “player” for 15 years…emphasis on fantasy. My persona in my leagues was always bombastic, antagonistic and confident in an intentionally delusional kind of way. An alter ego of my regular self if you will. My opponents and I would get into funny, spirited debates about players, teams, etc., and I proudly wore a bull’s eye with my posts, false bravado and such. One of my favorite things to do was to take a marginal player who I rostered on my team and if they had a good game, I would amplify the projections as if I’ve discovered some diamond-in-the-rough that nobody else in the league was prescient enough to find, let alone roster. For example, in his first pre-season game, one of my players, then-rookie WR Marques Valdez-Scantling for Green Bay, had 5 receptions, 101 yards and a TD. I took that meaningless pre-season performance and in a jokey post on our league’s message board, I extrapolated his production into a 16-game season, which comes to a projected season total of 80 receptions and 16 TDs…Jerry Rice-like numbers, and obviously ridiculous.
When I read the segment where you’re comparing Auryn’s 57 or 70 gpt test results to the world averages of 1 gpt and 4 gpt, it actually reminded me of my intentionally hyper-inflated and unrealistic statistical projections for my players in fantasy football.
I believe the highest gold grades of an underground gold mine in the world is Fosterville with head grades up to 40 gpt (it varies based on year and zone you look at) and millions upon millions of ounces produced, measured and indicated. When you consider that, and then the world averages, I think it is a bit over-the-top, if not ridiculous, to make any kind of comparison of Auryn’s miniscule sample to really anything. I’m not meaning to pick on you because I know you put a lot of time and effort into understanding this investment…far more than any other investor AFAIK. And I know you’re trying to help shareholders by sharing your knowledge of the company/industry; however, I think you’re smart enough to contribute a positive case argument without invoking far-fetched grade comparisons.
What I think shareholders need in order to make a reasonable assessment of whether the company can make “handsome profits” is to know the grade and tonnage of the shipment(s), how much it cost to ship, how much Auryn received for the shipment, how the ore was sampled for shipment, determine if the ore shipped to Enami was representative in grade to that which is stockpiled, how much ore is stockpiled, etc. In absence of those kind of metrics, shareholders are just kind of guessing what the possible outcomes will be…not unlike fantasy football.
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He’s going by historical shipping grades of the previous artisinal miners, corroborated by current assays and furthermore emphasizing that grades increase with depth in mesothermal deposits.
Maybe you should take the time to read his posts.
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He’s going by historical shipping grades of the previous artisinal miners, corroborated by current assays and furthermore emphasizing that grades increase with depth in epithermal deposits.
Maybe you should take the time to read his posts.
Given the current share price of this investment, and with 15+ years’ experience in this investment, one might argue that that has been both a waste of time and money. And most shareholders, including myself, have got some hefty tax loss credits that support that assertion.
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I agree with you Baldy. If it’s going to take 6 months just to get permits then we should just start selling the stockpiles and continued production to generate the cash to pay for the plant outright. At $50,000 per truckload profit and 3 truckloads per day, it will take about 3.5 months to generate $16million ($6milliion to pay back related party and $10million for the plant).
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Z. I can promise you it will take a minimum of six months to get the permiting. These permits can only be applied for after the engineering work for the plant has been completed. Post the engineering work comes the environmental impact studies, etc. etc.
You are 100% correct. The opportunity cost ($5k a tonne) becomes totally irrelevant given all of the variables. However, AUMC has made this choice. Maybe Maurizio can explain if anyone bothers to ask him. The “Doc” is clearly the leader of the perrennial optimists on this board. I’m not sure if he’ll ever admit to learning a negative tidbit but not taking the time to ask AUMC this critical questions is (candidly) inexcusable.
This data along with a Jolly Rancher will give you access to a jumpy house. Historical anything combined with a 270lb sample is literally worthless.
If AUMC was able to provide grades over thousands of tons (which they could do by shipping ore to Enami) the market and potential financiers would be eyes wide open. AUMC has decided not to go in this direction b/c they believe they aren’t getting full price from Enami on a very small percentage of the planned mined/shipped ore. Make sense?
Great, im just as skeptical. Just pointing out to Hurricane Rick what Doc’s answer to his question was since he has only stated it a thousands times.
There may be a debt financing option available as well. Let’s assume it will be a year before the new plant can process. We produce 15,000 tons of ore during the year valued at $5,000 per ton (pre processor). We sell half of it to cover the AISC, leaving 7,500 tons. If we finance the plant ourselves from cash flow, we will have to sell another 2,000 tons to pay for the plant. If we finance it through equity we issue another 40 million shares. If we finance it through debt we will incur $2million in interest and fees.
The debt would be secured by the 7,500 tons of ore remaining valued at $37.5million (pre plant value). More than enough to protect the lender.
So, which option is most beneficial?
Cash flow financing:
5,500 tons remaining at $10,000 (post processor value) per ton is $55million.
Divided by 70million shares is .79/share.
Equity financing:
7,500 tons remaining at $10,0000 (post processor value) per ton is $75million.
Divided by 110million shares is .68/share.
Debt financing:
7,500 tons remaining at $10,000 (post processor value) per ton is $75million. Deduct $12million to repay loan and interest and fees. Net is $63million. Divided by 70million shares is .90/share.
The debt option is 14% more beneficial than the cash flow option and 32% more beneficial than the equity option.
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I would think management is smart enough to know this. Why would he not go this route as you mentioned??
They may be looking into it. The most recent update states that they are looking at “various financing options”
By going the current planned route and diminishing our share value, the owner and board may also loose value, but, if they REALLY don’t care about the little guys and only care about self profit, they don’t ship now.
What is the current planned route and where is it stated in the most recent update? All i see is that they are “exploring various financing options.”
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Debt financiers will NOT use stockpiled ore for security. There are some examples of mines borrowing on a bankable feasibilty study reserve but AUMC doesn’t even have a resource. There is the possibilty of using the plant as security but that is only a partial solution. Also keep in mind that Maurizio would have to subordinate the $5M he has already lent. In other words, he would have to be willing to give up his senior secured position. If anything went wrong with the debt facility he would lose what he’s already lent and the asset. The reason why a mine plan is a prerequisite when taking on debt is that 1) the debt financier will mandate it and 2) you need to be very confident you can meet the interest and amortization schedule (otherwise you lose the asset).
Stream or royalty financing is by far the best option but highly unlikely to land given no resource, no mine plan.
If Maurizio is actually able to come up with some financing an equity raise, IMO, is the only viable alternative (with the exception of paying for the plant organically through production with Enami which seem/ed to be the obvious choice prior to the last update’s bombshell).
Their justification is that it is costing them an extra $5k per ton by not building the flotation plant and processing onsite. That figure, $5k per ton, means they are confident in the sample grades over the medium term, if not long term. Yes the sampling results you keep shitting on! The math doesnt work otherwise!
Therefore, you are either suggesting Maurizio is deliberately lying or that your expertise is superior to his. Both are quite outlandish, yet you claim Doc is the outlandish one.
Last point, for a guy who already sank a few million into the project, he certainly isn’t acting desperate in the way that you always portray the situation. Instead, it seems like he is making decisions based on very high confidence and bullish sentiment here. I think it makes sense to trust the guy whose own money is on the line versus a disgruntled poster.
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Correct. He has lied to investors. They said they were already starting to ship to Enami (for the umpteenth time). Three months later, they have changed directions again. Based on the $5k economic delta and the refractory nature of the ore. Two factors that were crystal clear when they said they were going to ship to Enami and provide regular financial metrics. Again, keep in mind that AUMC is basically flying blind by making this existential decision based on a 270lb sample. Could they have assayed considerably more? Possibly but the last batch took months and the company has not disclosed further “experimental batches.” Imagine a company pivoting to this degree based on the results of something called an “experimental batch.”
A month of speculation from a handul of ding dongs who have never had an accurate prediction vs. a 15 minute phone call with Maurizio to undertand what is ACTUALLY fueling his decision to dilute vs. ship.
I’m the furthest thing from disgruntled. Remember, I don’t own the stock. If this was anything beyond entertainment value for me, if I was losing hard earned dollars by listening to the blind Dentist or assuming the company was doing the right thing, I would be pissed and picking up the phone for answers. Thankfully I’m not in that boat.
How’s this strategy treating you thus far?
The lender will have proof of the grade and value of the stockpiled ore from the receipts from Enami from the sale of half the stockpile to pay for the AISC. They will be able to get paid back immediately, just a matter of how long it takes us to process, haul and sell enough tonnage to generate $12million. The loan will only be outstanding for as long as it takes to get the plant built and to production. Very short period of time.
We don’t need feasibility studies, mineral reserves, resources all of which have to be extracted. We have the ore ready for sale. We will have the receipts from Enami showing the value of the remaining 7,500 tons of ore. The debt is covered by 3 times on the low side ( preprocessor) and 6 times on the high side (post processor).
Honestly, I commend you for at least trying to think out of the box. I think I understand the general logic behind what you are suggesting. Sure seems to beat waiting around for a year. The only holes in what you are suggesting is the assumption that they can mine that much material, that it will grade on average 60gpt, and that any debt financier would lend based on 1/2 of the ore’s results processed by Enami. Stockpiled ore does not present security even when its assayed. Because AUMC will not have an onsite lab there will be no way to guess what the stockpiled ore’s grades will be. When chasing a narrow vein the variance between one handful of ore vs. another is massive. The reason why the “experimental batch” was so small was mosty likley b/c they hand picked visibly rich material. This is why the market/investors would never rely on that finding (nor historical/artisenal results).
Last obstacle in your suggestion would be stockpiling 7500 let alone 15k tonnes of ore. How would they stack it? Can you imagine seeing this image as you wind up the narrow road towards the mine??
