30-Apr-2020:  Quarterly Activities and Cashflow Report

This is a company I used to own shares in, but sold out in May last year, at $1.00/share, for a considerable loss, for reasons I explained at the time.  They are now trading at under 40 cents per share and have a LOT more shares on issue now than they did then, so each share is worth considerably less (as a proportion of the entire company) than it was last May.  They also have high costs - on track for June quarter production of between 33,000-36,000 ounces at MMGO (their Mt Morgans Gold Operation) at an AISC (all-in sustaining cost) of between $1,400-$1,500/oz - and hedging in place that limits the upside from the current high A$ gold price.  The A$ gold price today is around $2,600/ounce, and Dacian had a total forward hedge position as at 31 March 2020 of 115,455 ounces at an average price of A$1,978/oz, some 24% lower than the current spot gold price, which, in my opinion, is only going higher.

They recapitalised the company in April at 30 cps after being suspended from trading for the whole of February and March.  They closed on 31-Jan-20 at $1.40 and opened up on 14-Apr-20 at 45 cents (-68% lower).  The capital raising/entitlement offer was priced at -78.6% below their last traded price (of $1.40).  What a ride for DCN shareholders!  

Post receipt of recapitalisation proceeds and initial debt repayment, Dacian pro-forma balance sheet at 31 March 2020 consists of $87.4 million in cash (before costs) with total debt of $70 million.  Not a big buffer there, so plenty more can go wrong from here.  High cost gold miner with limited upside from a rising gold price.  And they've still got substantial debt.  Their market capitalisation is now under $200m, even with all of the extra shares they've just issued, and they have debt of $70m AFTER planned repayments using the proceeds from the raisings.  Their retail entitlement offer closes tomorrow.  Luckily it's fully underwritten, so they will raise the planned money, but to secure that underwriting, they had to do it all at 30c, almost 80% below their last traded price. 

It's a terrible outcome for their retail shareholders. 

A rescue-raising, the second one in 12 months no less, and they've come out of it still looking quite sub-par when compared to their peers. 

They've got higher costs, poor hedging, and their ore is low-to-medium grade as well, with an average feed grade of 1.5 grams of gold per tonne of ore, and with a plant recovery of 92.8%, that means they are producing around 1.4 grams of gold for every tonne of ore they process.  Hence their higher costs.  Their 2nd half FY2020 AISC guidance is between $1,550-$1,650/oz, which takes into account higher costs in the March quarter and projected lower costs in the current June quarter.  They say, "The Company’s three year outlook over the period FY2021 – FY2023 delivers average annual production of 110,000 ounces at an AISC of $1,350/oz."

I am particularly wary of their forward guidance, as their history is of overpromising and underdelivering.  

They're still trying to put a positive spin on everything.  They have always tried to do that.  However, when you step back and look at Dacian as an investment, it has been a terrible one for the vast majority of their investors.  And there are clearly better gold producers you can invest in - who have better fundamentals as well as much better track records, so there's just no need to be invested in Dacian Gold.  Not much to like really.

[Disclosure - NOT a DCN shareholder.]

23-Oct-2018:  Dacian Gold 2018 Annual Report - see here

05-June-2019:  Mt Morgans Operation & Corporate Update

Dacian Gold (DCN) came out of their trading halt this morning with a massive downgrade - Production guidance for the June quarter has now been revised down to 36,000-38,000oz at an MMGO (Mt Morgans Gold Operation) All-in Sustaining Cost (AISC) of A$1,500-$1,600/oz (previous guidance was 50,000-55,000oz at MMGO AISC of A$1,050-$1,150/oz).  Their gold production for the first three days of June was zilch (nil, nada, bugger all) after a ball mill motor failed and shut down their entire operation for three days.  They've also reported that underground contractor performance issues have resurfaced, which have resulted in lower productivity than previously anticipated.  

DCN’s preliminary FY20 production and cost guidance now anticipates production will be in the range of 150,000-170,000oz at an MMGO AISC of A$1,350-$1,450/oz.  A year ago, they had an aspirational target AISC of A$1,000/oz.  They're now saying costs are 50% to 60% higher (currently), and will still be 35% to 45% higher in FY20. 

A$1,400/oz (the mid-point of their latest FY20 AISC guidance) is NOT a low AISC and puts them in the least profitable 25% of our top 10 gold miners here in Australia.  I immediately sold all 5,000 of my DCN shares, at $1 (the price they resumed trading at this morning).  They're now down 56% to 70c.

An updated 5-year Mine Plan is set to be released by the end of June.  The Company’s preliminary review anticipates an annual average production level over the 5 years in the range of 160,000-180,000oz.  Several additional production sources that could increase this range are also being considered including from the Cameron Well, Morgans North and Mt Marven deposits.  The Company is confident ongoing exploration success will continue the indicative production levels of the 5-Year Mine Plan well beyond 5 years.

While they have given indicative FY20 guidance this morning (which I have commented on above), they have said that final FY20 guidance will be released by the end of June following completion of further optimisation analysis.

Also, following several recent unsolicited enquiries from corporate entities, the Company has commenced a strategic review process to consider potential corporate and funding initiatives which may culminate in a change of control transaction.

Dacian's "Mt Morgans" gold project and Gascoyne's "Dalgaranga" gold project were the two large EPC contracts that gave GR Engineering Services (ASX:GNG) such a successful FY18 (and why FY19 is going to be quieter due to the absence of large contracts of a similar size).  DCN & GNG also share a director, Barry Patterson, who has a decent personal shareholding in both companies (7.5m GNG shares and almost 7m DCN shares).  GNG also did the feasibility studies for Dacian prior to being awarded the EPC contract for the construction of Mt Morgans (MMGO).  GNG were NOT involved in the FS's (either the PFS or the BFS) for GCY (Gascoyne Resources), and Gascoyne's problems are now so bad they called in the administrators on Monday, which has had a knock on effect on NRW Holdings (NWH) yesterday (the mining contractors at GCY's "Dalgaranga" Gold Project) and Zenith Energy (ZEN) today (the electricity generation service providers at Dalgaranga). 

Both NWH and ZEN have released announcements over the past 2 days outlining their take on how the various possible outcomes at GCY could affect them.  The answer in both cases is "not too much" (my interpretation) although there is likely to be a decent provision in NWH's FY19 accounts for GCY when they report in August.  While NWH have said that they estimate their total financial exposure to GCY to be around $35m, most of that was expensed in the first half and the resulting likely cash movement in the current half is only around $8m.  To put that into some perspective, even with zero work at GCY's Dalgaranga, NRW Holdings (NWH) are guiding for FY20 revenue of around $1.5 billion, of which they have already secured $1.3 billion.

Disclosure:  I no longer hold any DCN shares, and I didn't own any GCY shares.  I do hold GNG & NWH, and a little ZEN as well.

08-Jul-2019:  More bad news to come?  DCN are in another trading halt pending the release of another announcement to the ASX regarding FY2020 guidance and an updated 8 year life of mine plan for their Mt Morgans Gold Operation (MMGO).  Voluntary Administration time yet?  Of course, with a A$ gold price that recently went over $2,000/ounce for the first time ever and a new high grade deposit found north of their existing operations since their last dowgrade, it could always be positive news...  ...But probably not...