1. The $13/kg figure is in today's money and so inflation has already been factored, at least to 2010 when the previous NI was written. Clearly, we would not be having this discussion if that wasn't the case.
A technical quibble perhaps... but a point worth making: I disagree with the point it appears you're trying to make... but, that also requires a correction in mine, in relation to the same point. Two issues...
First, note, that "Clearly, we would not be having this discussion if that wasn't the case." isn't obviously correct.
Of course, it is a fine thing if SRSR does actually prove, in a study that can claim legitimacy in relation to defining the project economics (coming "soon" from RPA?), to have total production costs that appear they will be significantly lower than others. I've long been making that claim... and I think we agree... that SRSR's basic costs "should be" a lot lower than others given what is known of the situation. Whatever the numbers used... the situation at Nemegosenda is one that appears it is clearly advantageous relative to others. It makes sense that mining from the surface in an open pit, with minerals exposed at or near the surface, versus digging tunnels to great depths to reach the mineral... provides obvious cost advantages in mining, along with other advantages that might matter even more. But mining costs are a small component of the total costs.
The key in the competition really isn't all and only about delivering some comparable (defined how ?) product at a marginally (or, significantly) lower mining cost... rather than about finding an optimal balance between (larger or lesser) total costs, on the one hand, and (larger or lesser) total value dependent on the quality of the resulting product. It's the spread between cost and value... not the absolute in the cost... that matters most.
Value in the finished product(s)... relative to the costs of producing them... is the key. Even if SRSR's basic costs were double those of competitors... but that meant the quality of the resulting product was also far superior... we'd still be having the discussion. I'm pointing out that the cost data has to be paired with reference to some quality benchmarks... to be made relevant in making proper comparisons. If SRSR's costs are $13/kg to produce "bulk" product that is at least comparable to the current "market standard" bulk product... that's fine... but, it is still giving an incomplete picture of the competitive reality, given rapid change occurring on the demand side, in terms of quality. As you slide higher along the product cost/quality curve, both the costs of production and the resulting value of the (assumed) higher purity end products will be higher. The spread between the cost and the value is the point... but, where along that cost/product quality curve is the target... now and in the future... and how does that relate to the curve versus time in the demand growth for higher quality product ? The issues in the market competition will include the ability to slide along that curve depending on changes in demand... without having to reinvent everything ?
Second, note, that while we're still waiting for studies capable of providing a proper economic analysis with a level of certainty we can rely on, it isn't at all clear, currently, what it is that the $13/kg figure MEANS... in terms of the basic costs to do what, and to produce what as an end product... at what particular grade or quality. Or, at least... that figure, assuming "industry standard bulk" grade as a target, doesn't necessarily best or properly highlight the potential in the optimal value... that a higher (absolute), but relatively lower cost ( versus competitors) to attain higher value products would enable.
The point... is that stand alone cost information perhaps doesn't mean much... if you're not focused on defining the costs in relation to some quality standard in the resulting product... using a longer time horizon in defining competition in the future. Lower costs are obviously a good thing... assuming the comparable quality in competitors products is able to be matched or exceeded... but picking out one spot on the cost/quality curve to highlight, as if it provides a full description of the competition... is an error.
I think we're in agreement, given what is known thus far, that SRSR should have some significant cost advantages... in relation to the other new potentials being considered for development. I'd also like to see them address potential competitive advantages OTHER than the basic "bulk grade" in the cost issues. |
