OK, here it. Some small errors of fact but he seems to get the picture as far as the southern mines are concerned. IMO the key to Jags long term survival is to put Gurupi into production.
"Last month I did an analysis of Jaguar Mining's (JAG) balance sheet and liquidity situation. My conclusion was that despite significant short term and long term liabilities, Jaguar has enough time to turn around their operation under new management. With the first major long term liabilities coming due in 23 months, Jaguar probably has four more quarters to return to a healthy positive cash flow. This would likely allow them to refinance the existing debt or possibly give them time to perform an asset sale to raise funds to pay off the debt.
Prior management and directors first tried to negotiate a company sale and then an asset sale and did so from a very poor position, as they first terminated the CEO of the company and then sat on their hands while the cost structure of the underlying operations deteriorated. The new management is aggressively cutting costs with an aim to return the company to positive cash flow.
The status of this turnaround is a work in progress. This month we received a report of Q42012 gold production, which was pretty disappointing from a pure production standpoint. The two operating mines (Caete and Turmalina) produced 21,676 ounces in Q42012. At an estimated gold price of $1,600, quarterly sales should be in the range of $35M. Based on the current trend, I expect cash costs to come in around $1,000 per ounce or better which would produce gross margin of approximately $14M. From that figure, management still needs to pay quarterly interest of approximately $8M, SG&A expenses of another $5-8M, as well as capex of $7-8M. In a nutshell this means that Jaguar will be lucky to break even on a cash flow basis during Q4. We will have a better feel for how things are progressing once Q4 earnings are released on March 12, 2013.
In order for Jaguar to hit its target of positive cash flow which will open more options for the Company, it is going to need to boost production at Caete and Turmalina back to the 30,000 ounce per quarter that it previously hit once during 2011 (Q32011). This would produce quarterly sales at current gold prices of approximately $48M and with cash costs of $1,000 per ounce, gross margin of around $18M. At cash costs of $800 per ounce (interim Management's target cost during the Q2 conference call), gross margin would expand to $25M. That level of gross margin would deliver quarterly operating cash flow of approximately $5-10M. So, we have two moving targets, increased production, and lower costs. Management needs to deliver on both sides of the equation in order to hit cash flow goals. Failure to deliver on both will leave the company filing for bankruptcy. Delivery on one side but not the other will leave the company hanging on the brink.
One positive development is the stock price's reaction to the Q4 production numbers. Despite poor production volume in my opinion, the stock proceeded to rally 30% on January 22, 2013 to just under $1 per share. This is a 30%+ gain in the stock price from the previous article that I published in December 2012. Why is this happening? I would like to believe that word is leaking out in various channels that the company turnaround is succeeding. However, my instincts tell me this is just not the case. A more likely cause when an illiquid beaten down stock increases in price dramatically over a short period of time is a massive short squeeze. This is likely the situation with JAG. Currently 10% of the float is short and after a huge drop from $7 to recently less than $0.60, shorts are cashing in their profits. This alone is not going to put a floor on the stock price. In order for the stock to stabilize and advance to closer to this author's opinion of fair value (approximately $5.00 per share), the stock will need to attract long term institutional ownership. There are probably not many institutional investors left after a 90% drop in the stock price.
This stock was formerly greater than $1 billion in market cap. Today it is just a $80 million market cap stock. Goes without saying - this stock can jump up or down on little volume so buyer or shorter beware."