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Strategies & Market Trends : Ride the Tiger with CD
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To: Condor who wrote (169676)7/14/2009 10:47:40 AM
From: Claude Cormier1 Recommendation  Read Replies (2) of 312967
 
May I offer a different opinion on the cause of the EPM failure.

Although, the reserves at Varvarinskoye are clearly lower than initially stated and the deposit is more complex, I don't think that the grade is what killed EPM. It has more to do with the complexity of the deposit. However, the new additional costs due to this bad continuity of the ore represent only $100 per ounce which should have been managable for a company in a healthy financial situation.

I think that the problem started with the failure of its contractor MDM Ferrroman which caused a delay of more than 12 months in the start of commercial production. That coupled with a strict hedge position of 450,000 ounces at US$575 while gold was starting a prolonged rally..did it. You can add to that some errors in the processing facilities.

All those delays forced additional costly financings and dilution and made it impossible to pay the hedges in time.

BTW, the complexity of the deposit is something that cannot always be discovered by drilling. Maybe it could have been in this case, I do not know.

BTW2, there are numerous other open pit operations with grades of 50-75% lower than Varvarinskoye that are making very large profits.

A sad story.
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