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San Gold Corporation - Management Discussion and Analysis Evaluation

San Gold Corporation - Management Discussion and Analysis Evaluation

Management Discussion and Analysis Evaluation as of July 12, 2014

For more information about how to evaluate the quality of a company's management, please visit the following page: Management Assessment - How to Evaluate the Quality of a Company's Management.

Date of Filling  Reporting Period  Outlook 

August 12, 2014 

June 30, 2014 (1st Quarter)  NA 
June 25, 2014  March 31, 2014 (4th Quarter)  NA 
<...>     
March 28, 2012  December 31, 2011 (4th Quarter) 

The Company is pleased to report two consecutive quarters of positive quarterly total and comprehensive income, demonstrating its transition into a profitable gold producer while executing its plan to aggressively explore and develop the Rice Lake greenstone belt. Going forward, the Company anticipates continued profitability while aggressively reinvesting in these mineral properties.

In 2011, the Company achieved record operating performance with record gold production of 74,277 ounces, a 71% increase compared to the same period of 2010.

Record gold production has been accompanied by a significant reduction in total cash operating costs per ounce of gold sold from $1,119 per ounce in 2010 to $848 per ounce in 2011. The Company expects that it will be able to continue to benefit from lower costs going into 2012 and has forecasted 2012 annual total cash operating costs between $700 and $800 per ounce.

Capital spending in the fourth quarter was allocated to the commissioning of new, high-capacity flotation cells and the installation and commissioning of a new screening plant and overland conveyor. These improvements are expected to further increase production and reduce total cash costs through increased capacity and improved gold recovery. The completion of these capital projects have increased the current mill capacity to approximately 2,000 tons per day. As a result of the operating improvements successfully implemented in 2011, gold production in 2012 is forecast between 95,000 and 105,000 ounces with infrastructure in place by the end of 2012 for production to increase again in 2013 to a preliminary projected level between 115,000 and 125,000 ounces.

The Company also completed its largest ever exploration program in 2011 which included approximately 350,000 metres of diamond drilling. The Company is currently consolidating the results of the drill program and is planning to present an updated mineral resource and reserve statement in the first half of 2012.

In 2012, San Gold will continue its aggressive exploration program within the Rice Lake greenstone belt. The Company has budgeted to drill in excess of 250,000 metres of exploration diamond drilling and has pre-funded the 2012 program. The objectives of the Company’s exploration program is to develop a larger mine complex that can be exploited through existing infrastructure. In 2012, the Company will also have exploration activities associated with optioned properties in and around the Rice Lake area.

With rising production volumes and declining cash costs, combined with a strong gold-price environment and a strong balance sheet, the Company is fully funded to finance its existing capital and exploration plans, as well as growth through new discoveries and potential acquisitions or joint venture opportunities. 

March 25, 2013  December 31, 2012 (4th Quarter) 

The Company is pleased to report strong operating and financial results emphasizing its transition from explorer to positive cash flow gold producer while executing its plan to aggressively explore and develop the Rice Lake greenstone belt. Going forward, the Company anticipates improved operating cash flows while reinvesting in its mineral properties.

2013 will mark another significant step forward in the evolution of the Rice Lake Mining Complex by extending operational access beneath the current mining areas at the 007 and Hinge mines. This development will provide the drill platforms required to increase mineral reserves for long-term mine planning and will also provide access for continued exploration of targets located along strike from known deposits at depth. The Company continues to be excited about the resource potential at depth as recent drill results below 26 Level confirms continuity of the geological structures.

In 2013, the Company will continue its aggressive exploration program within the Rice Lake greenstone belt. The Company has budgeted to drill in excess of 270,000 metres of exploration diamond drilling. The objectives of the Company’s exploration program is to develop a larger mine complex that can be exploited through existing infrastructure. In 2013, the Company will also have exploration activities associated with optioned properties in and around the Rice Lake area. 

May 9, 2013  March 31, 2013 (1st Quarter) 

The Company is in the process of implementing reductions to its operating, capital, corporate overhead, and exploration costs as well as evaluating investments that do not directly contribute to the Company's core operations. The focus will be to optimize margins per ounce and find the most direct path to achieving free cash flows.

For the balance of 2013, to combat lower than planned grade, the Company will concentrate on the 007 complex and bringing Rice Lake production back on stream at a more accelerated rate. The Company expects the changes to ultimately result in increased grade for the balance of the year, a further decrease in capital development spending and PPE spending requirements while maintaining the production guidance of 75,000 to 90,000 ounces.

The objectives of the Company’s exploration program is to develop a larger mine complex that can be exploited through existing infrastructure.

The Company has improved confidence about the resource potential at depth as recent drill results below 26 Level confirm continuity of the geological structures hosting the 007 and Hinge deposits. 

August 12, 2013  June 30, 2013 (2nd Quarter) 

The Company continues to carry out a comprehensive review of its operating, capital, corporate overhead, and exploration costs as well as evaluating investments that do not directly contribute to the Company's core operations. The focus continues to be on optimizing margins per ounce and to find the most direct path to achieving free cash flows.

The Company expects the changes to result in improved grade for the balance of the year, a further decrease in capital development spending and property, plant and equipment spending requirements while maintaining production guidance of 75,000 to 90,000 ounces at full year cash costs of between $800 and $900.

The objectives of the Company’s exploration program is to develop a larger mine complex that can be exploited through existing infrastructure.

The Company has improved confidence about the resource potential at depth as recent drill results below 26 Level confirm continuity of the geological structures hosting the 007 and Hinge deposits. 

November 12, 2013  September 30, 2013 (3rd Quarter) 

The Company continues to carry out a comprehensive review of its operating, capital, corporate overhead, and exploration costs as well as evaluating investments that do not directly contribute to the Company's core operations. The focus continues to be on optimizing margins per ounce and to find the most direct path to achieving free cash flows.

The Company remains on track to achieve its production guidance, with annual gold production of 75,000 and 85,000 ounces in 2013. The Company is revising its full year operating cash cost guidance to between $900 and $950 per ounce of gold sold.

The objectives of the Company’s exploration program is to develop a larger mine complex that can be exploited through existing infrastructure.

The Company has improved confidence about the resource potential at depth as recent drill results below 26 Level confirm continuity of the geological structures hosting the 007 and Hinge deposits. 

March 20, 2014  December 31, 2013 (4th Quarter) 

2014 will mark another significant step forward in the evolution of the Rice Lake Complex as the Company establishes operational access on 16 Level and completes the integration of the Rice Lake and Hinge/007 mines. This development will also provide definition drilling access in the adjacent L10, 08, 6163 and L13 zones and support the continued exploration of nearby exploration targets identified through the Company’s recent geologic structural analysis.

The Company achieved substantial cost efficiencies in 2013, especially in terms of capital and cash operating expenditures. Mining operations will continue in the Hinge, 007 and Rice Lake mines. Capital expenditures are expected to be further reduced and surface drilling will be largely curtailed this year. Underground drilling will be focused on supporting production and upgrading our large mineral resource.

The Company has formed a technical committee to evaluate all aspects of its Rice Lake operations. The intent of this rigorous review is to build on the efficiencies achieved in 2013 and create a clear path to profitability. Operations are continuing as previously planned and any changes to the Company’s production, cash cost, and capital expenditure guidance resulting from this review will be disclosed when they become available. 

May 12, 2014  March 31, 2014 (1st Quarter) 

In March, the Company initiated a comprehensive review of all operations at the Rice Lake Complex. The purpose of this review is to build on the efficiencies realized over the past year and maximize the production capacity of the infrastructure currently being constructed on 16 and 26 levels of the Rice Lake Mine. As part of the this review, the Company is continuing its transition to long-hole mining as its principal mining method in the Hinge, 007 and Rice Lake mines while incorporating a small amount of conventional mining in targeted regions in order to add supplemental high-grade ore. The Company is also conducting a full cost review and has already identified a number of areas in which it can further reduce costs through reduced inventory levels, smaller stope sizes, and improved grade control. The Company is also pursuing a promising new initiative to improve mill recoveries. As previously indicated, capital expenditures are expected to be further reduced and surface drilling will be largely curtailed this year while underground drilling will be focused on supporting production and upgrading the project’s large mineral resource.

The Company is continuing to invest in improved operational access on 16 Level of the Rice Lake Mine. Ventilation raises are being constructed to connect 16 Level with Hinge mine infrastructure while lateral development is underway toward the 007 deposit. Definition drilling has commenced from this newly constructed 16 Level infrastructure into the L10 and 08 deposits and will target the down-dip projections of the L13 and 6163 zones later this year. The Company will also continue to pursue prospective hanging wall regions identified as part of the Company’s recent geologic structural analysis of its mineral lease area.

The Company is encouraged by the preliminary results generated by the technical committee to date as it builds on the efficiencies achieved in 2013 and determines the necessary steps to profitability. Any changes to the Company’s production, cash cost, and capital expenditure guidance resulting from this review will be disclosed when they become available. 

My Commentary and Conclusion Regarding the Management Discussion and Analysis Evaluation

In the MD&A of September 30, 2013 the company revised its full year operating cash cost guidance to between $900 and $950 per ounce of gold sold (instead of $800 to $900 which was communicated in the MD&A of June 30, 2013. I consider this increase in cash costs as a negative sign.

Referring to the MD&A of December 31, 2011 the Company sees good potential to increase production from 2011 levels and at the same time to lower the costs. However, until today management didn't succeed in achieving these preset goals, which I consider as a negative sign too. Therefore, the questions to management are:

  • When does management expects to increase production and further lower the cash cost to the levels which were suggested in the MD&A of December 31, 2011?
  • What amount of capital is necessary to execute these plans?
  • Are there any further restrictions, except the amount of capital needed, before management can execute these plans?

 

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