DCN - Dacian Gold

[Sean K]

Needless to say it was a disappointing March Quarterly report, I could only bear to skim it.

They've maintained annual guidance, so are confident of a stronger June Qtr

Trading halt for capital raise. Was that in the tea leaves? Hopefully support at .30 holds for you and you get some cheap shares.

 

[finicky]

Heightened negative volume over at least the last two trading days, price drops anomalous to most other goldies against a rising $A gold price, hmm what could it have been?

Can't argue with the purposes that they state, quite a relief actually at 28c raising price. As usual shareholders don't get much of a look in as SPP is a bit tokenistic with a $5m cap and scale back warning.

At least holders can look forward to a river of news over fy22 with the bringing forward of mining the high grade deposits at Redcliffe (the acquired ex NTM Gold resources), 300,000 mtrs of rc/dd drilling at Mt Morgan and Redcliffe and restarting u/g mining at Westralia.

143m new shares from the placement + 18m from the SPP
I can live with it, not that that counts for anything, and right now am of a mind to fully subscribe to the SPP. Prior to the announcement I didn't think I'd have a bar of it.
Sorry for my rather irresponsible enthusiasm for this company leading up to this but I still hold all the shares I mentioned that I was buying and hold 75,000 DCN shares.

 

[barney]

price drops anomalous to most other goldies against a rising $A gold price, hmm what could it have been?

I think the very high AISC might have frightened a few punters in the short term @finicky

Last Quarter at + $1800/oz YTD almost $1500/oz

If they can reign that in a bit, the bottom line will improve quickly

The drop leading into a Cap Raise/Trading Halt also looks a bit "leaky" but that is a regular occurrence of course

 

[finicky]

Holding up well so far against the massive 28c placement and SPP announcement - 7m shares traded approx so far with current offer @ 0.29, bid @ 0.285

 

[mullokintyre]

Mr Market not all that impressed with the DCN quarterly. Production was below bottom end of the guidance.
At least the hedge book is being managed, debt now minuscule.
There may be hope for the dog yet.
Mick

 

[finicky]

Yeah, pretty dull. It's a long game now, win or lose. I will only be adding to my stack if it craters some time, sick of it. Didn't subscribe or buy on market around the SPP time. Haven't sold any.

 

[mullokintyre]

DCN surely looking like a takeover target.
With market cap now below 250mill (amd falling, hit another 52 week low today) , we may see one of the nearby players use their lunch money to take it out.
Mick

 

[mullokintyre]

DCN his another 52 week low of 22.
I have taken another go at this one.
May fall further, but I reckon now the upside is a better return bet than downside losing.
Mick

 

[mullokintyre]

DCN crunched again over past few days. preliminary annual out today.
The good news.
AISC is down.
The hedge book has been reduced significantly so average gold price up, and should continue to improve.
Westralia mine may restart in 2022.
Group debt down from 64 to 16 million.
Bad news.
Everything else.
Production down, grades down, last years net profit turned into a loss, cash and bullion on hand down,
Still 22mill options to be exercised at 27 cents.
At least 1,25 options expired out of the money this year.
Stuff still to be analysed.
The merger with NTM.
DCN has done some drilling on the NTM tenements to "advance the project."
I guess we will not know how good or bad the NTM tenements were/are until further drilling.
As they say in the classics, jury still out on this one, though market seems to have made its intentions known.
Mick

 

[mullokintyre]

DCN crunched again over past few days. preliminary annual out today.
The good news.
AISC is down.
The hedge book has been reduced significantly so average gold price up, and should continue to improve.
Westralia mine may restart in 2022.
Group debt down from 64 to 16 million.
Bad news.
Everything else.
Production down, grades down, last years net profit turned into a loss, cash and bullion on hand down,
Still 22mill options to be exercised at 27 cents.
At least 1,25 options expired out of the money this year.
Stuff still to be analysed.
The merger with NTM.
DCN has done some drilling on the NTM tenements to "advance the project."
I guess we will not know how good or bad the NTM tenements were/are until further drilling.
As they say in the classics, jury still out on this one, though market seems to have made its intentions known.
Mick

Hit a 52 week low of 20.5.
surely now it is attractive as a takeover target for someone.
its 100mill worth of plant, hardly any debt, actually produces gold and its cap is barely 200mill.
maybe Anglo Gold which as about 50 kms away.
maybe goldfields which has the granny smith mine at laverton.
Anybody will do.
Mick

 

[finicky]

A niggling feeling I should be averaging down from my buy price. The chart is decelerating and weekly close peeked above downtrend - could be a bullish break from a falling wedge? Volume isn't strong yet.
The price to net asset value is 0.7 and the 3mtpa plant and ancillaries would cost significantly more today today to build than is reflected in the asset value on the books. Although performance recently is dropping off, I believe the FY21 EDITDA was positive $59m - it's only after figuring in $64m depreciation and amortisation that you get a loss for the year.

It still has the vibe of a gold miner that could possibly go under, so it's an all or nothing punt.

 

[Sean K]

A niggling feeling I should be averaging down from my buy price. The chart is decelerating and weekly close peeked above downtrend - could be a bullish break from a falling wedge? Volume isn't strong yet.

Chart looks interesting finicky. Potential bottom at 0.195. First task is a higher high and low.

maybe Anglo Gold which as about 50 kms away.
maybe goldfields which has the granny smith mine at laverton.
Anybody will do.
Mick

There has to be some more M&A in the junior and mid sector I think, but would anyone have a go at this only a few months after the NTM merger? Maybe not big enough scale for a major and more likely another small player to join at some stage. Someone else in the Laverton area who needs a mill or expertise to go from explorer to developer to miner?

Surprised they haven't been better supported with DGO staff now on board after the merger. Not sure how much they now own of this.

 

[finicky]

@kennas DGO Dold (DGO) owns 64m shares of Dacian from its earlier investment in NTM Gold which merged with Dacian. DGO also has 22m options ex 0.27 in Dacian. Without checking I believe that Ed Eshuys is executive chair of DGO Gold. He is these days a non executive director of Dacian after being a director of NTM Gold

Staff that transferred to Dacian were exploration staff from NTM Gold
From the Nov merger announcement:
NTM’s exploration personnel will transition to the Merged Group, maintaining a continued and comprehensive knowledge base on the Redcliffe Gold Project.

I still think that the best argument for increasing my heavily losing investment in DCN is the increasingly valuable plant and mine infrastructure (increasingly valuable in today's replacement terms, not booked asset terms which are reduced from depreciation and amortisation adjustments and were cheaper to build than today)
From a recent presentation:
Large, operating mill provides for central processing operation giving economies of scale. Mt Morgans hard-rock processing plant is the only operating mill of size in the Laverton region not in the hands of a major.

 

[mullokintyre]

@kennas DGO Dold (DGO) owns 64m shares of Dacian from its earlier investment in NTM Gold which merged with Dacian. DGO also has 22m options ex 0.27 in Dacian. Without checking I believe that Ed Eshuys is executive chair of DGO Gold. He is these days a non executive director of Dacian after being a director of NTM Gold

Staff that transferred to Dacian were exploration staff from NTM Gold
From the Nov merger announcement:
NTM’s exploration personnel will transition to the Merged Group, maintaining a continued and comprehensive knowledge base on the Redcliffe Gold Project.

I still think that the best argument for increasing my heavily losing investment in DCN is the increasingly valuable plant and mine infrastructure (increasingly valuable in today's replacement terms, not booked asset terms which are reduced from depreciation and amortisation adjustments and were cheaper to build than today)
From a recent presentation:
Large, operating mill provides for central processing operation giving economies of scale. Mt Morgans hard-rock processing plant is the only operating mill of size in the Laverton region not in the hands of a major.

Your point is reinforced in an article in this mornings OZ.

The deepening skills crisis in Western Australia is helping reshape the state’s junior mining sector, with the fight for control over struggling gold miner Gascoyne Resources a key sign of the value of infrastructure built before construction costs surged out of control.
A new wave of consolidation is under way in WA’s mining sector as its skills shortage pushes up the cost of building new mines and infrastructure, forcing would-be miners to reconsider plans to become producers in their own right.

Explorer Bardoc Gold put itself on the market in late September after feasibility studies showed it’s the capital costs at its 3 million ounce gold project in the Goldfields had blown out from a $177m estimate delivered in March to $232m by September – and likely substantially beyond that by the time construction began.

That puts a premium on companies with existing infrastructure, such as Gascoyne Resources.

Only a year after it returned trading on the ASX from administration, and after posting a $44.1m financial year loss on the production of only 77,278 ounces of gold, Gascoyne is now at the centre of a pitched battle involving a mystery German fund manager and some of Australia’s most experienced and colourful corporate identities.

The cost of the infrastructure is going up big time, and the cost of getting the skilled manpower to build and operate them is also going up.
Hence, the value of an existing operating plant is also going up.
This also puts into some doubt the reality of capex forecasts for companies such as De Grey mining and their planned mill and plant.
Mick

 

[Sean K]

This also puts into some doubt the reality of capex forecasts for companies such as De Grey mining and their planned mill and plant.
Mick

Interesting comment about the Capex for DEG, Mick. I was very interested to see how much the POX/BIOX/Albion circuit was going to cost in their scoping study but they didn't break it down. Maybe for a reason. I've googled and googled to find how much this part of a circuit would add to a mill processing refractory ore and I can't find a definitive answer. I read somewhere that simply bolting on a POX would add $1b, but DEG has the entire Capex under $900m, so I very much doubt they can get away with that if it wasn't close to the mark and the $1b for POX is in fact incorrect for their particular project. Will be interesting to see how that actually unfolds.

 

[Sean K]

@finicky & @mullokintyre have we seen the bottom?? Looks promising.

But, lots of things look to have bottomed I suppose.

 

[mullokintyre]

Maybe the bottom I have no idea.
but at some point in time, the upside gain starts to exceed by some margin the downside risk.
for me personally, we reached that point at 20 cents.
will sit back and see how much of the mullah I lost on this one I can get back.
hint it will have to reach low 50,s to break even.
mick

 

[finicky]

Chart continues to look good to me kennas, nice rounding low, albeit small, break of downtrend. A decent pullback would pbly see me add fwiw, depends a bit on gold behaviour

 

[mullokintyre]

Yikes, the quarterly out does not make fantastic reading.
September production of 16,000 odd ounces an AISC of $2362 was within guidance, but with an average selling price of 2277, they are losing badly on the deal.
they maintain that production for 2022 will be in 100k to 110k range at 1550 to 1700 range, so there is going to be some big improvements next quarters to get even close to that mark.
My 20 cents buy still in the money, may well top up if this spooks the market back down to those levels.
Mick

 

[finicky]

Chart's a concern for holders now imo. Just bears close watching. Has lost a lot of reversal strength with the gap down after today's pathetic Qtrly. That grade, 0.79g/t mined for processing! Still mentioning labour shortages. Only ok if we choose to believe management's future projections.