The toll milling agreement is structured so that all dore produced from the ore will remain the property of Atna throughout the process and the associated toll milling fee charged to each ton will be treated as a credit to Jerritt Canyon operating costs.
So in a way, the toll milling masks the true Operating Costs at VG's mill. By acting as a credit, when VG reports Ops Cost, the revenue from the toll milling gets subtracted from VG's costs before Costs are reported. Thus the costs will be lower and make things look better than they are.
For example if VG's OpsCosts are 13M on 10,000 ounces in a quarter and they get $2M for processing Pinson ore, then they report OpsCost of 11M. That makes it look like Costs for VG are 1,100 per ounce when in actuality, they are 1,300 per ounce.
Where Jerrit Canyon should be headed is to filling its mill with ore from its own property AND getting its own costs structure in line. I guess this is legit from some measure of accounting "revenue recognition," but it seems like that toll milling fees should be under "other revenues?" But what really matters is how the market percives this change - if they think it is a positive and accept the newly reported "lower" OpsCosts.
Now another thing I am wondering about is the smaller lot size VG is allowing. If memory serves, Atna had to hold ore for a long time in order to get a batch large enough that ABX would process it. This might have been because ABX was batch processing ATna's ore - i.e. shutting down, cleaning out their process, BEFORE starting Atna ore - and thus getting a segregated run of ore and segregated, measurable outcomes. With the VG deal, it sounds like VG will be blending Atna's ore in with their own stream of ore and stock piles. That can be problematic.
First, in order to not get cheated, VG needs to understand the ore and how it processes through its plant. The engineers are going to do a mass balance throughout the processing in order to determine how much of what gets poured belongs to Atna. That means one had better have some darn good up front sampling programs in place for Atna ore - just take a look at the screw up GORO had with inaccurate sampling at the refiner. How much Gold did GORO lose in the settlement?
Second, VG needs to understand the gange material and the impurities as they might effect its process. Finally with a newly automated plant, VG is going to find some "DCS-fun" as the automatic settings for blended ore could be significantly different. Then with varying amounts of Atna ore blended at various times, the operation becomes less of a steady state optimization project and more of a constant shake out process as blend vary with time. Will be interesting to see if they can operate around and through these changes without hits to recovery and costs. |
