As you know Veris Gold (OTCQB:YNGFF) signed a tolling agreement to process ore from Pinson Mine which is owned by Atna Resources. It took many months for Veris Gold to ink this deal but now that the company has finally done it, investors have another concern - how much money can Veris Gold generate from this tolling agreement? My estimation is about $125 per ton, but some people strongly disagree with this figure. In this post, I want to quantify my reasoning and show you how I am coming up with this. I would like others to quantify their reasoning so that we can all understand the situation better.
In one of Atna’s financial reports (I don’t remember which one), it says that the company shipped 1,550 tons of oxide ore to Newmont (NEM) for processing. There contained 548 ounces of gold at grade 0.353 ounces per ton. The recovery was 92.6 percent. Atna received $600,000 from the sale. Here is what I am coming up with.
548 x 92.6 percent = 508 ounces
508 ounces x $1,600 gold price = $812,800, this is how much money was generated by selling these ounces.
From $812,800, Atna received $600,000 and Newmont kept $212,800
I look at the $212,800 amount as Atna’s cost of processing this ore.
This is how it translates into cost per ton.
$212,800 processing cost/1,550 tons = $137 per ton, rounded to $140 or $420 per ounce
Now this is oxide ore and Atna is being charged $140. Atna was using Barrick (ABX) to process refractory ore which is more expensive to process. I suspect that Barrick is charging Atna more than $140 to process refractory ore. Recently, Atna signed a tolling agreement with Veris Gold to process refractory ore.
Atna probably is going with Veris Gold because they want to lower their processing costs. When I say that Atna will be paying about $125 per ton, some investors are strongly disagreeing with this number saying that I am being too optimistic. The argument is that at $125 per ton, Atna’s cash costs would be too high. If this is the case, then why are Barrick and Newmont able to get $140 per ton from Atna while Veris Gold cannot get $125? I suspect that Barrick and Newmont are able to charge this much because they are the only game in town. From Atna’s point of view, they pay $140 per ton or they do not process their ore. Atna does not have a processing facility and if it wanted to build one, it would take it 10 years and maybe $500 million to do it.
Now Veris Gold comes along with spare capacity which means that Barrick and Newmont are not the only game in town anymore. Why is it not possible for Veris Gold to get $125 per ton when Barrick and Newmont are already getting more? Any comments are appreciated.