Johnny, it seems you take my words in wrong sense now. Actually, my message meant that PEA numbers are good enough to be relied on and prospective lenders will use them for sure.
It is another story that market is very bad. In good market, RBY would get financing easily enough. Now it is much more difficult; though it is doable, imho. That’s the general idea. It is premature to analyze specific impact of financing before seeing it (actual terms).
I would like to make clear the point about streaming. It is available and it is doable, assuming that it is economical and the latter requires specific assessment. Maybe, I will add a post later about “few basics” pertaining to streaming.
Now I would like to point to specific example, very recent streaming deal with parameters similar to some extent to RBY case. Please check streaming transaction made between Silver Wheaton and Sandspring Resources (SSP.v) about a month ago. You can see the news release (Nov. 11) on SSP.v Yahoo page.
For example, for long time a poster (alias starts with “s”) touted cost number supplied in PEA. Now when message board situation changed (mostly, in his ego terms) the same poster says that NPV number from the same release is totally unreliable. For your reference: both numbers are the same, essentially. Cost means revenue minus profit. You cannot get correct cost using incorrect profit.
Actually, NPV is the main number supplied by complete economic analysis (in any industry and application). If you don’t trust NPV number then you should not use the document entirely. For reference: any cost numbers can and should be deduced from NPV, just to verify that you understand fine print correctly. Cost numbers come with the fine print telling which cost is included and which is not. Total cost (including all components) must correlate to NPV.
By the way, what should you do if you suspect that specific PEA is wrong, but you still want to invest in specific company? You should try to find other documents and try to make correlation between them. In RBY case, you have two PEAs. Compare the numbers, try to find similarities and explain differences. If you just say that both documents are not reliable then, well, it might be too much to do investing (real one, not just filling a message board with hot vapor). Please, consider simple question, specific to present situation. If PEA numbers are unreliable then how would you expect company to raise money. Will anyone lend them based on fake numbers?
Hopefully, it is enough information to recognize the difference between merits of reading and analyzing official releases and hot vapor produced by BS artists on these message boards.
Incidentally, this board discussion got to the point relevant to any person trying to make investment in the sector. Should we trust numbers supplied by companies in various releases (drilling reports, PEA, feasibility study, etc.) and if yes, then how much?
Every mining release has dual purpose. Firstly, a company wants to inform investors about present situation with company assets. Every publicly-traded company has duty to inform about material events and any number characterizing company value is material.
Secondly, every company wants to show things better regarding future prospects. One should understand that resource-related numbers cannot be 100% accurate and companies have vested interest to present them in more optimistic way. At the same time, market regulators ensure that this optimistic bias kept in check.
In total, it makes sense to use numbers supplied by mining companies with pre-caution, they might be too optimistic. After all, market regulators cannot check every company and every release.
Now I feel obliged to add few words regarding BS often filling these boards regarding the numbers. Firstly, always check numbers how they are released on paper, even if it requires going back and reading old releases. Secondly, don’t trust guys telling that company purposely released numbers worse than they really are. This line is the first sign of pumping. Thirdly, be especially suspicious to guys trying to use one number from the release and disregarding other numbers from the same release.
Bigdaddy, I didn’t say that management has no input. I said that it is unlikely that management purposely influenced contractors to deliver incorrect PEA numbers, all for the purpose of receiving cheap stock options. It looks even unlikelier taking into account that BCSC closely monitored the process.
In other words, I don’t see any malicious intent here. Please note that any purposeful delivery of incorrect PEA numbers to public would have to be considered malicious.
I thought that considerations above were expressed clearly enough in my preceding message. Sorry, if it was ambiguous for you. Hopefully, it is clear now.
Bigdaddy, firstly, PEA is not made by management. It is done by independent contractors.
Secondly, your hypothesis requires assumption that management consists of crooks who purposely influenced contractors to deliver inflated first PEA NPV and/or deflated second PEA; all for the purpose of dumping share price and receiving better stock options. You are definitely entitled to have this opinion. However, take into account that RBY case was closely monitored by BCSC, especially at the point when first PEA was prepared. It indicates that it was very difficult, at least, to have first PEA inflated.
Anyway, I don’t say that your idea is completely wrong. It is possible though in my opinion it is not the most probable case. I don't believe in this story. I still think that ground conditions (one can call it geological environment, if this term looks more palatable) discovered during initial stage of construction explain this case better.
Needless to say it is impossible to have 100% proof for any hypothesis here. One may only talk about legitimate argumentation and reasoning.
Both PEAs deal with the same deposit located in the same area. Different mining methods can extract different amount of gold from there and grade can be different. That’s the reason why NPV is used; it shows which mining method brings the highest value. It is not connected with amount of gold or grade. It is possible to have higher NPV for lower grade and vice versa and anything else. The highest NPV is the criterion to proceed with actual mining.
If for some reason company decides to proceed to actual mining in the way promising lower NPV then it means that other ways, promising higher NPV, are not available and if someone decides to dig deeper, for the practical purpose of investment, then this person should think why those ways are not available anymore.
Frankly, I am not sure you are capable to get what I wrote above. The only nonsense is one coming from your messages sewells. That’s the reason why I see no reason talking to you. You lost all your money by good reason; you cannot grasp the simplest investment concept.
I kindly advise you to think a bit before starting to type next reply. In my opinion, this “discussion” is quite complete.
Your market/business inexperience shows up again, sewells. What is the purpose of mining gold, or better say the purpose of any business? The purpose is to get higher investment return, i.e. in this specific PEA-mining example, to have higher NPV.
You don’t change mining method and/or increase construction cost for the purpose of having lower NPV. However, that’s exactly what’s happened in F2. Regarding “grade”, just because you seem to be obsessed with the issue, you don’t start mining lower grade if it lowers your profits/NPV. Is it clear to you now? Write it down in some place, maybe it will save novices from getting misled by you next time.
You may decide to change mining method, increase construction costs and have lower NPV only if you cannot use the other way (mining method), previously contemplated, that had higher NPV.
“Gold loans” offered by few investment companies, e.g. Sprott, work following way. The borrower (usually, gold developer) gets cash (usually, to finish construction or solve serious production issues) and pledge to repay the loan “in gold”, i.e. all payment of interest and, usually, principal will be calculated based on gold price. These payments will be “denominated” in gold amount; gold price fluctuates.
It means, simplistically, that all cash that gold company receives from the lender will be re-paid as following: fixed number of gold ounces multiplied by gold spot price at the point of repayment. It means that loan impact is flexible. If gold price goes up after loan is initiated then lender wins; it will get more money for the same amount of gold. If gold price goes down then borrower wins.
However, life is not that simple as it is described above. After all, lender gives money and so lender writes rules (no matter, what kind of “anxious competition” between various lenders could be imagined regarding this process). The rules also say that lender is entitled to have guaranteed minimum investment return, for example 10%. It means some modification in the loan impact. If gold goes down then lender gets minimum return, if gold goes up then lender gets higher return.
Also, gold loan works the same as regular loan on ownership side, i.e. in case of borrower default lender has claim on borrower assets.
Think5x, you may have experience in mining engineering, I don’t question it. However, your knowledge of pure investment basics causes questions.
More specifically to your last message, updated PEA was not “done at lower gold price”. PEAs are not done for specific price. They are done for any gold price, i.e. they supply range of NPV numbers, each for different gold price. You can easily get NPV for any gold price.
In this respect, I suggest you to spend few minutes analyzing something that is more related to investment, than to engineering. After all you try to make investment here. You will see that updated NPV is lower than initial NPV, again it is true for any gold price equal in both cases.
Please, ultraific. Are you going to tell that it is mandatory to work in mining before posting on these boards? Or maybe you want to tell that goldmania and sewells work in gold mining?
Hopefully, you will find brains to stop it now and don’t try silly attacks anymore. It can be said at least that I didn’t provoke you personally, neither here nor on other boards.
I have to complement my preceding message. The last question in the message is not just about construction cost. It is also about difference in NPV between initial and updated PEA. One can say that using different equipment and/or mining method can justify increase in construction cost if in long run it increases project NPV. However, project NPV didn’t go up. It went down in the updated PEA. In my opinion, you should come up with explanation of this phenomenon, especially if you dismiss the idea of ground conditions that could explain it.
Sorry, initially you didn’t refer the word “absurd” to the title of the thread. It was clear from the thread that it was referred to the opinion that “bad ground” can exist. Certainly, you can speculate now, after I showed you the release, that “bad ground” was related to different area, different equipment and/or something else; while conditions in mining areas are perfect. You can definitely have this opinion, but I don’t see how it can be proved. It is not better than saying that every area is bad.
At least, you can’t say now, hopefully, that it is absurd to say that “bad ground” was discovered during digging the shaft. In this case, why is it absurd to discuss it?
Now I have a question to you regarding “cost calculations”. If usage of trackless equipment and ramps is efficient, as it comes from your message, then why total cost of construction went up, and not down, after company made this change?
Every market prediction is statistical, i.e. future is unknown, one can only predict, right or wrong way, which scenario is likelier. In other words, both 800 and 2000 gold are possible numbers; this is stock market, anything is possible here. However, some number has like 10% chance to succeed, while another has it at 60%. Which one would you use to make your investment decision?
More specifically, it makes sense to start decision from present point, because statistically speaking the likeliest scenario is that future will be more like present. Again, it is not 100% true; it is just the most probable scenario. In other words, you can buy a gold stock if it is good enough for today’s gold price. If your assessment of the stock (good or bad for current gold price) is correct then you have the best chance to lose less if gold goes down or make more if gold goes up (both cases if you bought the stock); conversely, if you didn’t buy it can save you lot of losses (gold went down) and/or present the least case of lost opportunity (gold went up).
This “statistical” approach is especially relevant to gold, because it is the least predictable commodity. In copper or coal or any other industrial thing one can at least study numbers: industrial consumption, mining output, warehouse stocks; they give an idea about future changes in commodity price. In gold lands, situation is non-transparent.
You can hardly find a gold company that could afford at this point luxury of hoarding gold in a warehouse. If you don’t sell your product then you don’t get cash to pay your bills.
Actually, you could find few companies doing hoarding in good ole days when gold pushed 1800. It was doable because some miners had extra cash; and it was wrong, because warehouse cache quickly lost value.
This scenario would solve many issues and it could provide new life to the company. The only “problem” is that old shareholding would be permanently diluted to the level practically excluding return to good ole days, though good ole days gone anyway.
Basically, any kind of financing will move share price lower and so starting investment here before financing doesn’t make much sense, except gambling on recovery in gold and this can be done in safer places.
At least, if financing is done then this case could go to debate about future profitability; without financing it is more about survival. In this respect, financing that would not affect future profitability seems to be better choice, because survival is essentially situation when profitability goes below break-even point and the whole industry flounders somewhere around this point.
Califmale, when you call to IR (any company IR) you will always get positive feedback. It is the same when you call to your broker, your bank, whatever… people want your money and they will never tell you something bad, unless at least it is wrapped in good-looking paper.
If you or anyone else will call to IR dept then, for sure, they will tell you that company works on financing and this is true. Ironically, it is about the same situation if you call to any other gold company at the moment.
The rest is fictional, i.e. stories about multiple lenders anxious to make the deal while the company sits on big chair and shows discontent with these noisy bankers.
I apologize for telling you trivialities above. For sure, you knew them already.
By all available industry criteria, regular debt deal is not realistic. Again, it was impossible, even in good gold market to land a traditional debt deal for a non-producing company without feasibility study. The bottom line is that conventional banks do not lend money without collaterals; every person who ever bought a house can understand this.
Actually, even streaming or gold loans made by Sprott and likes were part of bullish market environment. Streaming companies really made loans without collaterals counting on bull market going forward and collecting higher interest for that. It is the same way as it goes on your local street. You may not be able to go to your saving bank and get loan there, but you can always go to a pawn shop on the corner and sell your gold watches; the sale will be called a “loan”, and shop owner will re-sell your watches for higher price.
When gold market is bad, even streamers have to think twice before lending money because “gold watches” are not made yet and there are no guarantees that they will be made. What if prospective gold producer gets streaming money, goes to production on them and finds that production is not profitable, after all streaming payments or even without them? The streaming deal doesn’t have good collaterals, streamer has to absorb loss.
A bank will never lose on traditional loan (unless this is Freddie/Fannie-like deals). Streamer can lose; royalty buyer can lose. It is a riskier business, and riskier business means higher interest (investment return for lender), and present gold market can be too weak for earnings high enough to pay this higher interest. It is kind of squeezing both on lender and borrower side.
In my opinion, JV or outright sale would be a better deal for present shareholders; though it depends on gold market. If gold goes up strongly tomorrow then… the best thing would be doing nothing today, right? It illustrates that future is hazy, and enjoy the show while it lasts.
PS: by the way, lenders do not compete to make deals with non-producing companies. They didn’t do it even in good market. At least, something is clear. They don’t even compete now (bad market) for deals with producing companies.