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Gold/Mining/Energy : SOUTHERNERA (t.SUF)
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To: Gord Bolton who wrote (5643)2/10/2000 1:29:00 PM
From: Elizabeth Andrews  Read Replies (1) of 7235
 
Gord, thanks for all the information on Messina. I believe your numbers for "profit per tonne" are quite a bit higher than they actually will be. Here's why I think that.

First, the mine will produce a concentrate which requires shipping and treatment at a smelter. Second, in the milling and concentration process some portion of each of the metals is not recoverable due to a variety of things.

So the trick is to estimate what the dollar value per tonne of the metals is after the loss in concentrating and the smelter charge. Then you have to deduct for mining and other cash costs at the site such as G&A. This should result in pre-tax cash per tonne. It is from this number that the risk of repaying the capital cost, purchase cost and other project related costs, such as mine development costs, can be measured.

As a general rule, if the pre-tax cash per tonne multiplied by the mill throughput per year is 2 or 3 times the estimates of all costs then a mine will likely be borne.

Using your numbers the calculation may be as follows.

Gross ore value=$167 /tn. Deduct 30% for recovery loss in the concentrator =$50/tn. Net ore value=$117/tn. Deduct another 30% for smelting transport and other costs=$35/tn. Net smeter return=$82/tn. Deduct mining cost per tn=$34. Pre-tax per tn =$48 X 1million tns/yr=$48 million pre-tax/yr.

Now if the capital, development and purchase costs are less than $96 million Messina is likely to be a mine, subject to metal prices.

Also, do we know what the assumption is about mine dilution at zero grade is and is this factored into the stated resource grade which could be significantly different (lower) than the head grade of the ore?
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