I really do not see anything negative at all.
In fact the following positives stand out for me.
The bonanza grades reported in this week’s ANN were recovered from outside the current resource boundary. In other words this will stand a good chance of further increasing the producing footprint of the mine.
Out of the 20 000m being drilled atm only 5 000m has been reported – 15 000 m still to come.
At the key Shambesai site we have drilled 9 700 metres out of a planned 12 300. I would expect therefore that there will be further drilling in the area of the bonanza grades that are presently “just” outside the boundary of the planned mine.
If 9 700 metres has been drilled so far in Shambesai then the results of the drill core assays are surely imminent on at least a further 4 700 metres.
MSR has spent a lot of time drilling and mapping the area so by now they shiould have a really good idea where the good grades are. This should help MSR to report the best possible g/t from the remaining cores.
All results show that mineralisation is open at depth.
Later this year MSR plans to have upgraded the resource and size of the pit by analyzing in more detail (from further drilling) the western part of Shambesai.
So far indicated and inferred resource totals come to 1.13mn tonnes with an average grade of 2.1 g/t across both Shambesai and Obdilla.
MSR has calculated viability using a gold price of $1000 per ounce. By the time they start producing next year the gold price should still be in the $1500+ level bearing in mind long term structural problems in Europe and USA debt ceiling woes. Using $1 500 we of course get far more profit per tonne of ground dug up.
The drilling is going to cost $5mn for the whole of 2011 and we have $11mn on the balance sheet (maybe $8mn or so after this quarter’s drilling.
We have 60mn options which expire at the end of September which on exercise will bring in a further $12mn.
Capex is estimated at $16.3mn
The cost of producing gold from Shambesai over the first 3 years is setimated at US$180 per ounce and planned production is 100 000 ounces pa. That equates to an ebitda type profit of around $1 300 per per ounce or $130mn per year. MSR estimates this will produce free cash flow of $96mn per year…. against our current mkt cap of around $30mn ($50MN diluted) – so a pe of 0.5 then
The company has a PFS currently underway and plans to submit this to the government authorities this quarter in order to receive a mining permit. It should be stated that the Krygistan government and local authorities have a history of supporting mining projects on an FDI basis such as MSR’s.
I do not think there will be any need for further cap raising outside the exercise of the options. If you look at EVG you will find that certain banks (Macquarie for example) have a history of lending money when all the hard work has been done and production is imminent.
MSR talks of a payback within 9 months (using $1000 per ounce for gold). At $1 500 or even $2 000 per ounce this time period reduces dramatically.
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So considering all that and especially the fact that we have a huge number of key ANNs due over the next few months then we can only go up from here.
In which case the options (even with only 10 weeks left) show around 9 times leverage and follow the SP very closely – are surely a bargain worth accumulating.
Finally I hold both MSR and MSRO.
Anything I have missed?
EB
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