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Gold/Mining/Energy : SOUTHERNERA (t.SUF) -- Ignore unavailable to you. Want to Upgrade?

To: Confluence who wrote (4066)	7/19/1999 12:31:00 PM
From: VAUGHN	Read Replies (1) \| Respond to of 7235

Hello Confluence Like I said, you and some of the other Hamsters are far more qualified than I to offer any business analysis of these plays. I really can't offer to much insight beyond the subjects of geology, exploration and development implications, and even my perspective in these fields is arguably limited. However, when everything is said and done on these plays, it always seems to me that the market focuses on just a few key issues. Everything else is smoke and mirrors. 1. Rate of production 2. Profit per tonne 3. Dilution 4. Management 5. Blue sky 6. Stability I am not aware of an underground mine anywhere that produces more than 5,000 tonnes per day or roughly 1,500,000tpy. That is not to say that there isn't one, but I simply have not heard of it. This it seems to me is always the key limiting factor in share price potential. If you can't produce more, (open pit) you can't make more $$. It has been my observation that the speculative market really doesn't care about too much more. Having sufficient ore to justify the investment is key but beyond that, I don't think the market really cares. Monopros always maintained that to justify a $500 to $900million open pit/plant investment at Kennady Lake, it wanted to find 40,000,000 tonnes. You can extrapolate up or down for grade differences and open pit vs underground scenarios. The market seems to quickly consign this issue to the cross-off list. As an open pit comparison, Ekati will ramp up production from roughly 9,000tpd up to 18,000tpd, Diavik, slightly less. Essentially this rate of production is why I keep harping on the Yamba play with its pipe potential over the Munn Lake play. The latter could have ore worth 3 times as much as Yamba, but in the end, the volume of production and the lower production cost from any Yamba pipes will produce far more profit faster than anything Munn, Snap, or even Messina could produce. As noted, the second side of the equation is the cost of production. As you can see in my Snap analysis an otherwise very exciting ore value of $187/t can be quickly brought down to a good but less exciting number like $97/t by underground mining costs. Diavik's prefeasibility study, suggests mine site operating costs are estimated at C$59 per tonne of kimberlite for years 3 through 9 and C$66 per tonne of kimberlite over the life of the mine. The life of mine costs include the underground mining phase as well as open pit. The mine site operating costs do not include sorting, valuation, marketing, royalties, reclamation and corporate costs. I believe WSP suggested the figure of $90pt for underground costs which seems to jive with the Diavik figure above. In theory, an increase in the production rate should see costs per tonne come down but that has limited results in an underground mine while an open pit operation can realize significant reductions. In my Snap calculations, I used the production rate of 5,000tpd for WSP as I believe I read somewhere that that was their goal. I further assumed a conservative production year of only 300 days allowing for shutdowns, etc. As you pointed out, WSP's rate of production may be considerably lower at 3,000tpd which makes capital repayment even lengthier if the stock isn't diluted. I took my share float numbers from WSP's website, but these are often out of date and I am sure yours are correct. Combined with that lower production rate, that seems to suggest an even lower potential for the share price than I allowed even if the play % increases significantly as per Trev's post. I would further suggest that the 2001 or 2002 start up is optimistic beyond reason as the time consuming environmental assessment and community consultation process has hardly begun. So as I have long maintained, Snap will be a nice little mine as will the Leopard/Sugarbird fissures, possibly Munn Lake, Messina and even that new 15m wide DHK play dike. However, 3-5+ Yamba Lake pipes producing at 18,000tpd @ a net ore value of only a modest $58pt would contribute $300,000,000+py to SUF's bottom line and $10.00 per share in earnings for 16 to 25 years. In a stable law abiding country, that is what makes the market sit up and take notice. Everything else is minyanna (sp?). Some folks were looking for a slave craton map and this one may help from Aber's web site. ceaa.gc.ca Regards