Norseman Gold General Discussion

29th Jun '09 by marben100

22 comments 6816 reads

I have now completed an initial version of the article/wiki for Norseman (click on "wiki" above to view or edit the article).

This suggests a valuation ITRO of 40p at current gold prices & exchange rates, including 8.5p/share of cash and I open the floor for discussion, having added to my holding today at 26.75p. When estimating profitability the A$ PoG is most important [around A$850 is true break-even, with cash costs currently being below A$700/oz].

Quarterly Results

		Mar-08	Jun-08	Sep-08	Dec-08	Mar-09	Jun-09

Production	oz	19,088	21,116	19,007	19,831	19,902	22,013
Average Realised Gold Price	A$/oz	1,023	947	983	1,180	1,352	1,216
Operating Cash Cost	A$/oz	763	741	855	701	693	636
Project EBIT	A$m	N/A	N/A	-1.1	5.6	9.9	8.5
CAPEX	A$m	2.3	8.4	2.8	4.5	4.4	5.6
Cash Balance (inc bullion)	A$m	16.4	9.3	9.2	10.2	20.0	35.3

Total Cash Cost	A$m	14.6	15.6	16.3	13.9	13.8	14.0

		Jun-09	Sep-09

Production	oz	22,013	16,160
Average Realised Gold Price	A$/oz	1,216	1,150
Operating Cash Cost	A$/oz	636	900
Project EBIT	A$m	8.5	0.3
CAPEX	A$m	5.6	6.6
Cash Balance (inc bullion)	A$m	35.3	31.8

Total Cash Cost	A$m	14.0	14.5

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marben100

30th Jun '09

In reply to Gradders73 (post #2)

Per the ASX prospectus, David & Gary Steinepreis have 330,000 options each; Barry Cahill has 2,100,000. Cahill's options expire in April 2010 & have an exercise price of 62.5p. A further 1,250,000 options with an exercise price of 50p expiring between August 2010 & July 2011 have been issued to key management.

I wouldn't expect that much of the cash will be needed for explo. Most of the explo should be funded from cashflow; however larger sums will be be needed to finance development of new mines. s1.3 of the recent prospectus shows a budget of A$11.8m for two years explo AND development (detailed in sections 2 & 5)..

In a recent presentation David Steinepries gave in London, he indicated that the company was hoping to pay a dividend in FY09/10. He also indicated that the company did NOT intend to undertake any acquisitions.

Gradders73

It is impressive to see that management made personal loans to the company when they had problems last year, I like it when you see management put their money where their mouth is, so to speak. Interestingly, they bought back the convertible debt at a 30% discount as the lender had money problems - this looks a smart move.

I think, given where the valuation is, the opportunity for gain is a speculation on gold prices and the success of development of a 3rd mine. I read in another report that the forward p/e estimate for the company is 2, which puts it on an extreme for even for AIM.

Reserves upgrade out this morning: http://www.stockopedia.com/news/announcement/NGL/090630ngl000992.htm

Nothing overexciting in the reserves @ 400,000oz - but good to see an increase over a year ago, validating management's view of mine life.

The doubling of resources is more spectacular and 3.7Moz is none too shabby. However, the price assumption of A$1,200 for commerciality is pretty aggressive. Anyway, the market seeems to like it: up over 9% in Aus.

2nd Jul '09

Must admit after such a rapid gain in such a short time, I have "lightened up" a bit @ just over 36p. Might add again if the price dips and the PoG remains OK (certainly hasn't started moving up yet).

Cheers,

Mark

20th Jul '09

Norseman has released a significant RNS today: http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=00969865 (the ASX PDF includes diagrams that cannot be reproduced in the UK text-only version). There is also an associated radio interview with Barry Cahill: http://www.brr.com.au/event/58700 . My thoughts, FWIW are as follows:

Judging by the interview, BC certainly seems happy with the results
The Harlequin results are most encouraging, with the discovery of a new gold-bearing reef. This should lead to a resource/reserve upgrade in due course and, as the RNS says:

The Perch Reef can potentially give the Harlequin Decline a complementary production source to the Redfin Reef which will allow the production from this mine to be further stabilised at present levels into the future

So that should assure continuing production at at least current levels for the foreseeable future.

Though the geology is promising, no gold intercepts have yet been found by drilling at the OK decline, however, few holes have so far been assayed and further results and drilling are awaited.

As a non-expert, thought I'd look up the defintion of "reef" in this context. This is the best I've come across so far: http://www.dictionary.net/reef

A large vein of auriferous quartz; -- so called in Australia. Hence, any body of rock yielding valuable ore.

Work on identifying the third ore source is progressing, but slowly.

Meantime the PoG is continuing to hold up well, so Norseman should be continuing to generate good cash & profits. We should get the activities and cashflow report for the June quarter very soon. [must be issued before the end of July under ASX regulations]. Profitability is likely to be significantly less than for the March quarter, due to lower gold prices, but should still be satisfactory. Expenditure on explo is likely to have increased. It will be most interesting to see whether the falling trend of cash operating costs has continued.

A repetition of last year's autumn surge in the PoG would do wonders for profits and probably the SP, as a result.

Regards,

21st Jul '09

I've added an A$ PoG chart to the header, for convenience.

24th Jul '09

Well, I must say I'm beginning to wonder if I'm the only one with any interest in this company? Besides the encouraging explo results, we've now had an excellent quarterly report from the company, released yesterday. I didn't rush to post because I wondered whether anyone else was going to comment. Congratulations to Barry and his team on delivering so superbly: http://www.investegate.co.uk/Article.aspx?id=200907230700151431W

Gold production from the Norseman Mine during the three months to 30 June 2009 totalled 22,013 ounces at a cash operating cost of A$636 per ounce Au. The production for the quarter is a record for the Company since taking over the Norseman Project in May 2007.

These are excellent figures for Norseman's mines. The bank balance is looking very healthy at A$35.3m, including bullion, after raising A$9m in the recent ASX listing. [edit]A$5.5m of the cash is tied up in an environmental bond held by the Western Australia state govt. I will add a table illustrating Norseman's progress to the header.

The interesting question is whether the rising CAPEX will lead to rising production going forward?

Betasurfer

27th Jul '09

In reply to marben100 (post #9)

I am certainly listening re Norseman, I just don't know enough yet to invest, but it's on the watchlist.

28th Jul '09

Norseman have posted an interview (2 mins) with Barry Cahill, commenting on the quarterly results here: http://www.brr.com.au/event/59031

7th Aug '09

A good & forthright article on the recent history of Norseman has been pubished by minesite: http://www.minesite.com/nc/minews/singlenews/article/norseman-gold-announces-record-production-rates-and-record-low-costs-for-the-third-quarter-in-a-row/1.html

...Barry Cahill, who had been brought it to sort matters out while Central Norseman was still in the hands of administrators has massive experience of underground mining having been involved with Western Mining’s nickel operations, the Fortnum gold mine, the Tarmoola gold project, the Yilgarn Star gold mine, the Mount Pleasant gold project, the Broken Hill base metals operations and the Blair nickel project. Ask any Aussie rock monkey if he has heard of Cahill and the reply will be that he stands out as one of the top specialists in narrow vein mining.

Mind you, he was faced by a very difficult task as a self-opinionated man called Michael Ivey had made a dog’s breakfast of mining it previously. When Cahill took his first look at Norseman’s Harlequin mine he was horrified. The mine plan was based on fairly inaccurate exploration drilling, and on mechanised mining in a narrow vein environment...

3rd Sep '09

I have posted a comparison of NGL vs AGLD on the AGLD thread, here: http://www.stockopedia.com/forum/view/31549/lots-to-like-usual-small-miner-worries which investors may find interesting. ;0)

We have a new interview with Barry Cahill commenting on the prelims, 5 mins, worth a listen.

North Royal will take 3 months to dewater, expected to start next week. As Barry points out (and most reading probably know) IF NGL can get further ore source(s) into production, as planned, this should produce a step-change down in cost/oz as the Phoenix mill is filled. Whilst not mentioned in the interview, the prelims state that NGL now has sufficient cash to do so without further capital raising.

22nd Sep '09

Statutory accounts were published on Norseman's website last week. I'm working my way through them and have compared the 2009 reserve/resource statement (p5), with that published in the 2008 A/R.

We know from the June RNS that some good improvements in proving up resources have been made, and reserves and resources in all categories have increased (apart from the proven reserve, which is a negligible amount due to the impracticality of formally proving narrow-vein reserves ahead of actually mining them) . I had not previously noticed where the most striking difference lay: underground inferred resources* have increased from 440,000oz to 1,600,000oz.

I presume that this has arisen from the discovery of the new Perch reef + drilling at the OK decline.

Norseman are presenting at next week's Proactive Investor's event, which I hope to attend, so I'll have an opportunity to find out more there.

*Definition of inferred resource: "that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence" Further drilling & assay work is required to convert inferred to indicated resources.

StrollingMolby

29th Sep '09

I note that canny investor Jim Slater has taken advantage of the small pullback in price and been increasing his stake here, and now holds 4%. It can be said Jim Slater knows his mining stocks given his notable success with Galahad Gold.

Also, and deviating slightly, I noticed earlier in the month that Slater is launching a Junior Mining fund to be run along side the Junior Oils fund by Angelos Damaskos of Sector Investment Managers.

21st Oct '09

The Junior Mining Fund I mentioned in the post above has just issued it's first monthly update. There's no Top Ten holdings but the commentary does include the following:

"We have invested in companies with large reserves, experienced management teams and in most cases strong, growing cash-flow, little or no debt and no hedging. Among the fund’s largest holdings at the end of September were Centamin Egypt, Norseman Gold and Medusa Mining. All of these fulfil the fund’s investment criteria when compared with their peer group which gives them the base for a re-rating."

http://www.juniormining.co.uk/200910_update.pdf

23rd Oct '09

Jim Slater is trotting out the same three junior miners as mentioned above, by his son-in-law Angelos Damaskos, in this Gold 'Best Bets' article in today's Money Week:

Why you should bag junior gold miners

Small companies are under-researched, so you are more likely to find a hidden gem. An excellent example is Norseman Gold (LSE: NGL) in western Australia, in which I have an interest of more than 4%. It has A$35m of cash, no debt and a very attractive price/cash-flow ratio (PCF) of about a third of the average of its peer group. Norseman has a mill working at only 60% of capacity with plans to bring two further mines on stream during the next two years, which could increase production from 80,000 oz a year to an eventual 140,000 oz. This would result in a reduction in costs of A$100 per ounce – A$14m a year. The higher production would also provide 75% more revenue. As Norseman already has such an attractive PCF this should bring about a significant rise in the share price.

(with thanks to Alun Morris who highlighted this on another board)

SM

Prob worth reminding that the September quarterlies must be out next week. Given what's already been disclosed, they won't look very good & may scare some punters - unless Norseman can include a very soothing outlook statement.

Cheers,

Mark

2nd Nov '09

I have updated the thread header to include the figures from the September quarter report . As expected per my commentary on the Proactive Presentation, production was very low (relatively speaking) - but in line with the 16,000oz figure expected from the presentation.

Barry has today posted a 5 minute audio commentary on the results and operational progress, well worth a listen. In that commentary he states that cash costs are relatively fixed and cost/oz is largely determined by production. This is borne out by the row "total cash costs" that I have added to the table in the header (=cost/oz * ounces). For the last year, this has been around A$14m per quarter - but has risen slightly to A$14.5m in the last quarter.

CAPEX has been rising steadily - but this is logical as work proceeds to bring the new ore sources on stream and increase resources/reserves:

In anticipation of the development of the third mine, the Company placed a major equipment order in June 2009. The order includes a second two boom jumbo, a third diamond drill, three large underground loaders and a new underground truck. The entire order has been financed by the equipment vendor over 36 months and represents a further investment of over A$8m in the development of the Norseman operations.

The Company took delivery of the two boom jumbo in the last weeks of September.

The expenditure appears justified by confirmation of the reopening of the OK Decline last Thursday, as the first additional ore source and consequent increases in annual production guidance:

As a result of the approval to commence mining at the OK Decline the Company has upgraded its full year forecast to between 80,000 to 85,000 ounces of gold (previously 75,000 to 80,000 ounces of gold) at a cash operating cost of between A$720 and A$780 per ounce in the 2009/10 financial year.

The Company also provides new guidance of between 105,000 to 110,000 ounces of gold at a cash operating cost of between A$670 and A$730 per ounce in the 2010/11 financial year from the Bullen, Harlequin and OK Declines.

This RNS confirms the indications given in the Proactive presentation.

The following image (may be clearer if you download the linked PDF!) accompanies the results announcement:

If you compare it against slide 14 of the Proactive presentation , you can see that progress that been made since the July date of the presentation slide, extending the main drives into the new Perch reef (which appears pretty substantial), and drilling from there to locate additional resources. this is explained in Barry's audio commentary, released today.

Considering that the A$ gold price (as shown in the chart in the thread header) is holding pretty steady around A$1,150 and possibly rising, this all appears to augur well for the future. Shame that the share price didn't drop off in the light of the poor looking quarterly results, allowing me to get a cheap top-up. :0)

p3dr036

16th Nov '09

marben - I've looking into Norseman for a while now and even have some in my Fantasy Fund. However I have held off from "real" investing so far for two reasons.
1. Their cost of mining at around $700 per oz seems high in comparison with another miner that I do hold [Medusa Mining - MML which I bought in April this year].
2. My other reason is that I may well have "missed the boat" on this one since I started loooking, since it has doubled!

Hi p3,

I've had MML on my "to do" list for a while - wanted to check how their delivery on promises has been looking. Funnily enough I checked it out over the weekend and I like what I see... so I'm looking at finding a decent point to buy in at. (as I also concluded that I wanted to increase my overall exposure to gold). This morning's PoG strength has given MML's SP a bit of a boost, as well as NGL's. My only concern is that MML haven't been turning their profits into net cash, rather increasing CAPEX - but this seems reasonable.

I agree that MML's low cost operation is a big plus but this is reflected in their market cap now being around 3x Norseman's (despite lower production to date).

The net result is that NGL's SP is more heavily geared to the PoG, esp in A$, rather than US$. Overall, ISTM that NGL is higher risk/reward (but in the current & likely forward PoG environment, the risk is moderate).

PS - merely doubled? It has more than 20-bagged from its lows! :0) The same could be said for MML, which has roughly 10 bagged. Nevertheless, I won't need much of a dip in the SP to buy some MML - as I'm bullish on the PoG and a P/E of 10 with considerable earnings growth potential doesn't strike me as too pricey. The situation is similar for NGL. Ah sod it, I've convinced myself & just bought an initial slug of MML. :0))

Norseman Gold General Discussion

Quarterly Results

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Marben100

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