Nustar Mining Corp NMC, following the merger with Intrepid Minerals Corporation on July 4 2006 became Intrepid Mines. Issued capital of 164m shares gives market cap of AU$68m at 42c.
Grade variability has negatively impacted reconciliation and production (reconciliation is the amount of gold actually coming out of the mill, when compared with what you thought you fed into it, based on your ore-reserve model). Previously reconciled to +4.3% (good) but last qtr ending Dec06 was minus -24.0% (not good). A team was formed to fix this by more drilling and better supervision of development activities (to reduce dilution). Planned production is about 70KOz/yr. Based on the Dec06 qtr, production will be about 68KOz.
Debt & Hedging
Westpac short term loans are in breach of covenants, but thus far waivers have been granted. This debt will need to be restructured or refinanced via equity.
2007: 50.5KOz hedged @ AU$627/Oz
2008: 44.5KOz hedged @ AU$627/Oz
Realised gold price for Dec06 half was US$495/Oz. Cash costs for the half were US$418/Oz. Annualising this gives 68KOz * (495 - 418) = US$5.2m (AU$6.5m or AU 4c/share). Cash costs for 12 months ending Dec06 were US$349/Oz, so assuming the company can fix the reconciliation problems and improve the mined grade (therefore reducing the cash costs toward the previous lower level) the company might look good value at a share price of AU 42c. Reported EPS for the Dec06 year was US 1.13c (AU 1.4c).
Production grade improved. Expect 17KOz for the qtr (68KOz annualised) which is a 16% improved on the previous qtr. Reserved funds for the next scheduled debt payment. Currently half way through both the hedging programme and debt repayment.
Development– Casposo Feasibility Study (Argentina)
· Mineral resources (Indicated only): 2.2 million tonnes of ore containing 313,278 ounces gold and 8.2 million ounces silver, grading 4.46g/t gold and 116g/t silver
· Mineral reserves: 1.8 million tonnes of ore containing 270,089 ounces of gold at 4.69g/t and 6.5 million ounces of silver grading 114g/t silver (predominantly open cut)
· Average annual production of 50,478 ounces of gold and 1.1 million ounces of silver or 68,500 ounces of gold equivalent annually using base case gold and silver pricing
· Average annual operating cost: $248 per ounce of gold equivalent, or $168 per ounce of gold after silver credits (of $8.50 per ounce)
· Capital costs, including 12 percent contingency, $45.5 million
· Average annual surplus operating cash flow (at $500/Oz and $8.50 silver) after sustaining capital: $13.8 million
· Internal rate of return 15% at a base gold price of $500 per ounce and $8.50 per ounce silver, rising to 40% at $650/Oz gold and $12.85/Oz of silver
· Construction period: 15 months