Re-post for new investors looking at this soon-to-be Gold producer:
During my initial DD on Excalibur, I came across some areas where I needed more information. So I contacted Tim Gallagher, who was very approchable and did reply very promptly.
Here are my questions and his answers:
Q: What are the estimated production costs and cash flow expectations for the Catanava operation ?
TG: I built a sensitivity table on p.19 of our presentation showing the cash flow at different production levels (100-750tpd) and grades(1, 3, 6, 9 grams). In general, we are trying to keep it simple targeting $1000 per ounce profit as that is typical for gold producers with gold at $1700. Since we have an erratic vein system we are expecting alot of variability and clearly until we get some actual material flowing consistently any figures are just estimates. With our small market cap any amount of cash flow at a 5-10x multiple will lead to great return.
Q: What are the plans for dividends, as this is quite unusual to pay a dividend as a junior explorer ? And how does the tax situation affect the dividend calculation ?
TG: Its early regarding dividends since the plant isn't up yet. No question most companies haven't done it but the pressure to do so has been building over the last year. In general, gold producers are generating a 50% margin so unless it is a very low grade, high capex operation, there is no reason not to pay a substantial dividend so that is our goal. Based on the $1000 per oz profitability assumption we think we can pay a dividend especially as we don't have the typical mining company overheads so we can target up to half the available cash flow(after taking care of plant and expansion needs). So for example, roughly the first $5-600k in free cash flow implies a 1 cent dividend at this point. Our role model is GORO -Gold Resource Corp which pays a 5 cent per month dividend. Also, Starcore(SAM) which has a similiar operation east of Pinos is planning to pay a dividend in 2013 after it pays off a hedge which has been costing them $1 million per month. Taxes are a factor, however, historical losses will shelter income for the forseeable future.
Q: Minera Catanava is a JV operation where XBR holds 49%. Going through all the Financial Statements since signing this JV agreement in September 2010, I´ve found different statements regarding the ongoing financing of the project. First XBR was just funding the equipment, then the pro-rata funding would commence at the point of commercial production and then it was stated that the pro-rata funding would start 2 months after starting commercial production.
When does the pro-rata funding start ?
TG: XBR has provided all the financing to date averaging about $100k per month(roughly split between equipment purchases and payroll) with a budget of $2 million to get into production($1.6 million to date). The agreement regarding splitting cash flow is 2 months after starting commercial production.
Q: One of the company goals for 2012 is the TSX Venture listing. When can we expect that ?
TG: The timing has been under our control. The market was weak in 2011 and we needed to provide updated 43-101 reports. We wanted to have the most advanced snapshot of the status of the Catanava plant in our submission, so we took the fellow who is doing the 43-101 report to the site to do some sampling December 2011. Hopefully, this report will be completed and submitted to the TSXV in March.
Q: And my final question would be on the use of cash flow. If half of it is used for dividends, would the remaining half be only spend on Catanava or are there plans to use some of that cash for exploration at Silver King/Cariboo or Sturgeon Lake?
TG: Currently, we think the most leverage and investor interest is in Catanava and particularly in expanding the plant size, given the signficant impact on cash flow. There is no compliant 43-101 resource so more drilling and sampling needs to be done, especially to explore depth potential, since historic workings are very shallow, down to the water table of 100 meters. It is also our goal to increase our ownership and explore the rest of the Pinos District - a 1994 suggests there is potential for 3-4 bulk ton targets for example. Regarding Silver King, it has only been drilled to a 70 meter depth so the primary gold target below the old mine should be drilled this Summer. Sturgeon Lake's best targets closest to the old Mattabi mine should also be drilled but we would like to do that with an experienced VMS partner in a better Zinc market.
Hope this sheds some light on the various points other potential investors might have come across during their DD.
FANTOMAS
