1) Production and Cash Cost Per Oz
Etruscan is starting to shape up well. Their Youga Mine is in Burkina Faso, West Africa. Burkina Faso is the poorest country in Africa (or amongst the poorest). The government owns 10% of Youga and they are extremely mining friendly. They look to the mining industry to generate a lot of jobs. They expect mining to be the top industry in Burkina Faso for a very long time into the future. The West Africa region itself is the most mining friendly region in Africa, by far.
Youga achieved commercial production in Jul'08 and made really good progress in ramping up production ounces in their Q4'08 timeframe (their reporting quarter is 1 month ahead of the calendar quarter):
*Sep’08 – 6,572 ounces
*Oct’08 – 7,457
*Nov’08 – 7,136
Their steady state production level is 7,000 ounces per month. They achieved that level in Q4’08. They also realized a cash op cost per oz of US$480. However, they experienced a couple of significant setbacks for the next 7 months after that point - Dec'08 to Jun'09. Their production and cash costs were severely impacted. They said the 2 primary problems were related to temporary power issues (until the permanent power line is put in place) and lower than forecast drill rig availability for the blasting of ore and waste. It appears as if solutions have been put in place to mitigate the problems, and the company continues to make improvements. As a result, their production output has picked back up over the past couple of months:
*May’09 – 3,626 ounces
*Jun’09 – 5,127
*Jul’09 – 6,093
*Aug’09 – 6,526
They are getting back closer to the 7,000 per month steady state production level (90% belonging to Etruscan). A 7,000 ounce per month production level represents an 84,000 ounce annual target for Youga. The annualized run rate based on the August production level is 78,312 ounces. It would be good if they could get back to the US$480 cash op cost per oz level – US$450 will probably be in reach once they get both production and grade up to planned levels, and perhaps even US$400 if they are really successful.
It’s crucial for them to demonstrate that they could deliver at the 7,000 oz per month level in the near future.
2) Reserves and Resource
Youga (Burkina Faso) - 90% = 481,000 ounces
Agbaou (Cote d'Ivoire) - 85% = 481,000
Finkolo (Mali) - 40% = 0
Total Reserves = 962,000 ounces
Youga (Burkina Faso) - 90% = 958,000 ounces
Agbaou (Cote d'Ivoire) - 85% = 1,094,000
Finkolo (Mali) - 40% = 395,000
Total Resource = 2,447,000 ounces
3) Calls / Hedges
They have puts in place to give them some price protection at a US$629 gold price. They paid for it with some calls. The call price is US$700. They originally had to deliver 246,306 ounces into the call position, but that is now been reduced to 161,792 ounces at end of May’09. I figured, with monthly production level of 7,000 ounces, they will be allowed to sell about 40% of their production ounces at the spot price in 2010, 42% in 2011, 63% in 2012 and 100% every year after that point.
Here is what Total Youga production might look like (assuming 7,000 ounces effective in 2010) for these time periods:
2009 (Jun – Nov) = 37,800 ounces
2010 fiscal yr = 84,000
2011 fiscal yr = 84,000
2012 fiscal yr = 84,000
2013 fiscal yr = 84,000
Here is the profile for the remaining call/hedge book ounces that are still to be delivered (according to their MD&A report) – to be sold at US$700 per oz:
2009 (Jun – Nov) = 30,876 ounces
2010 fiscal yr = 50,682
2011 fiscal yr = 48,750
2012 fiscal yr = 31,484
2013 fiscal yr = 0
Here is what might be available for sale at the spot price:
2009 (Jun – Nov) = 6,924 ounces
2010 fiscal yr = 33,318
2011 fiscal yr = 35,250
2012 fiscal yr = 52,516
2013 fiscal yr = 84,000
4) Primary Debt obligation
Their primary debt balance is now down to C$27M (at end of May’09). Payments are due on a quarterly basis over the next few years (I believe). They will likely need to achieve steady state production levels before start up debt covenants are fully satisfied (I have no info on the current status of any of this). The recent improvements in production will likely benefit Etruscan in achieving this objective in the not too distant future.
Their next largest debt is about C$8M. That debt is not due until their primary debt has been fully paid.
They also have about C$20M in accounts payables (balance at end of May’09).
They also have a few smaller debts (similar to the Convertible Promissory Note Century will be purchasing), but nothing significant.
5) Agbaou Advanced Stage Project
It is located in Cote d’Ivoire in West Africa. It is ready for development once funding is in place. Agbaou is 85% owned by Etruscan.
It is currently targeted for annual production of 82,000 ounces (69,700 for Etruscan), with US$507 cash op cost per oz. I believe they might be updating the feasibility study, and perhaps are expecting improvements in the numbers also. The start up cost is expected to be around US$105M plus working capital. They said that the costs were originally put together at peak market prices and with the assumption of using new equipment. They are reworking the numbers to incorporate more recent (lower) prices and some used equipment.
That’s all of the key areas I can think of right now.
If all goes well with Etruscan, I expect their share price to get back to at least $1.00 within the next 12 months. They use to trade in the $2.00 to $4.00. I think it's a good investment for Century.
A $1.00 Etruscan share price will likely increase the value of Century's investment in Etruscan to the C$30M to C$40 range (enough to offset almost all of Century's debt total, including the Prepaid Gold Sale).
7 comments:
Thanks production
Right now i'm eagerly waiting for more exact guidelines about Lamaque, but maybe they must get started a bit first. With this new russian guy and more capital than atleast i expected( Etruscan shares+good set warrants etc.). I would really feel that a mine with historic consistent production and 5M + O, would plan for no less than 150k per year, in a few years that is. The only way i would get positive about these 50-60k figures in 2011, is if they have planned it like this, because of easy mined ( cheap production ounces ). In a way we have 3 companies now
SJ= low cost and almost certainly 20k per year
Etruscan= atleast close to 15k per year
Lamaque= Defintively 100k+ per year in 3 years from now
What's that worth?
..also we have 8M shares .14 to wait for to be closed, i guess it's already done, but ofcourse i hope not.
Juha
Not to be overlooked here is what it cost us to acquire the Etruscan shares. We issued 40,000,000 shares for 26,315,789 shares of EET plus 6,890,741 warrants. At CMM's close yesterday of 19 cents, 44 million shares was equal to $8.36 million. Forgetting the warrants for a minute, the 26.3 million shares cost just under 32 cents per share. EET closed at 45 cents today, so we are already up 13 cents per share or $3.4 million in one day. That share price increase all happened in the last hour of trading today.
Guess who was the largest net seller of CMM shares today? Yep, good old Canaccord. They have an inexhaustible supply.
There is a scenario that could provide Century with 26.6% of Etruscan (based strictly on the items in today's NR).
Step 1) 16.5% ownership
Current outstanding EET shares = 159,142,000
Century will assume 26,315,789 of EET's outstanding shares at closing
26.316M / 159.142M = 16.5%
Step 2) 22.2% ownership (with exercise of all warrants)
6,890,741 @ $.5478
4,630,760 @ $.3602 (may need EET shareholder approval perhaps twice: 1) to transfer ownership to Century; 2) to approve exercise of the warrants - if exercise is not approved then a cash settlement is required and the interest on the note increases from 10% to 20%)
New o/s shares owned by Century = 26.3M + 6.9M + 4.6M = 37.8M
New EET total o/s shares = 170.7M (159.1M + 6.9M + 4.6M, the 26.3M is already counted in the 159.1M so no need to add in)
37.8M / 170.7M = 22.2%
Step 3) 26.6% ownership - a couple of key approvals will be required to get Century's share ownership of Etruscan to this percentage
Firstly, EET shareholders will need to approve the transfer of the promissory note ownership over to Century.
Secondly, EET's management will need to allow Century to convert the debt to shares instead of settling the debt in cash.
EET's management would be nuts to pay Century C$3.7M in cash to eliminate a minor debt when there is bigger fish to fry with regards to their C$27M senior secured debt (especially if Century is will be to flexible). Management would be crazy not to dedicate all of their available cash towards reducing the number one risk to their business. They should actually thank their lucky stars if Century is willing to take cash.
The due date for the C$3.7M note is May 28, 2010.
The original note was for US$3.0M. That converts over to C$3.369M (based on info in today's NR). The note pays 10% annual interest. The interest is added to the note and out in a lump sum at the due date, thus we get C$3.7M all rolled up.
The conversion price is $.3602.
C$3.7M / $.3602 = 10.288M EET shares to Century if converted
New o/s shares owned by Century = 37.8M + 10.3M = 48.1M
New EET total o/s shares = 181M
48.1M / 181M = 26.6%
So which Co. benefits more from this arrangement?
From the Jul 30th NR:
"The prepaid gold facility is a forward contract to deliver 49,868 ounces of gold over a five-year term."
From yesterday's NR:
"The prepaid gold facility is a forward contract to deliver 51,728 ounces of gold over a five-year term."
It looks like the bank was trying to squeeze us. They got an additional 1,860 ounces from us. Let's hope that we got something in return, like more flexible debt covenant terms, etc.
I guess it wouldn't really matter too much once our new investors are officially in place. It is the financing contingencies that they bring to the table that matters the most here, regardless of how the bank treats us in the future.
I don't know how many people noticed this funding contingency:
"If following closing of the Private Placement the Company requires additional working capital to fund the development and operation of the Lamaque Mine, the Investor will provide the Company with all of part of such additional working capital through the exercise of the above described warrants or an additional private placement up to a limit of C$15,000,000."
This is essentially C$15M of emergency funding - something we never had in the history of this company. If the share price is $.30 or higher than we can access the funds by the warrants being exercised. If the share price is below $.30, and we have an emergency situation, we can access some of the funds by doing a PP.
We will also have emergency funding via the Etruscan shares. The would only be a worst case scenario of course, as I believe the intent is to keep those shares as part of a long-term investment in West Africa.
By the way, our Poderosa shares are probably worth about C$360K but maybe it will increase to the C$500K+ level if the gold price continue to increase. It's peanuts, but it's still something when looking for contingency funds.
Also, I don't know how much finished ounces of gold we still have sitting in inventory at Lamaque right now. I think it's probably around 2,700 ounces. Let's say they were on Century's books at Q2's gold price of US$929. The gold price is now US$1,017. It means that the value of those ounces alone has increased by C$255K (US$88 per oz).
production,
the gold in the Lamaque milling circuit was about 2k O(2,050 i believe ) more or less exactly last i checked at Sedar, but the main problem were the expenses to remove the gold. How much could it cost(?), i hope it cost us less than 0,5k atleast. I guess the big guys now consider both Century and Etruscan as one(?) and later maybe will make a merger. I don't like it if this takes away century value. But with $US 50-60M in raw cash( included 16,5% of Etruscan ) i hope it will be though, and that we are better standing then them. The thing we need to use is 10-15M to eliminate imideate debt+ramp up SJ to well over 20k next year. If this will be the case we have only LT debt left and the Gold forwarding contract will be out of our way, beacuse SJ will take care of it alone. With this we have $30-35 US Million left for Lamaque. If it runs out, i would like that we first of all trust, that SJ could deliver a couple of extra millions per year( but we will need i think 25k year to give us that )+ the possibility to get a 1-1,5M bonus from the gold contract+several 100's from broker warrants. Also as a possibility when the US $30M runs out, we could sell small parts of our interest in Etruscan. This is ofcourse a great downside security, if we stay under .30 per share, instead of getting a low $15M pp from the russian guy or something even worse. Remaning this year we also have more liquidity pouring in, right? $1M from last pp at .14+~$2 US clean net cash from SJ, it will do us good and keep up with the administration, salaries, interests etc.
I also thought about the extra ounces like you did, one theory is perhaps that we don't need to pay the 200k "There are no upfront fees, warrants or interest payable to the bank during the term of the facility." -but it could be everything.
Carib,
I also noticed Etruscans SP, but i really hope that these big guys will give Century the priority and not Etruscan. I guess they will if this goes through, we have the liquidity, and if Etruscans cashcosts doesn't settle maybe we have a chance to earn even more interest. If at all we have something to do we Etruscan in the future besides the double intersest between the companies?
All in all we shold have a larger marcet cap than Etruscan i think, the only way they should get past us, is if they prove up more ounces, mine cheaper and succeed to ramp up to over 100k at Youga( as they are supposed to do according to themselves ). I don't really know how high the income taxes are down there either. I also hope they will wait with a start up at their other mine until they are financially stable, they already have some cheap warrants and options not much but enough. If they want money later on, let them sell their Century shares to us in replacement for cash or interest in their company.
Juha
A pretty good day for Etruscan I'd say. Anyone guessing where it might go now?
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