via Financial Post - Miners To Face Development Squeeze

"The industry was caught off-guard by an announcement in the budget that pre-production mine development expenses will be treated differently. They are currently treated as “Canadian exploration expense” (CEE) and are 100% deductible. Now the government wants to treat them as “Canadian development expense” (CDE) meaning they would only be deductible at a rate of 30% per year.

This means companies will be paying taxes before a mine is in production and they have recovered those development expenses, experts said. It introduces new risk, especially for junior companies trying to develop mines. They could have more trouble issuing flow-through shares to fund construction of projects."

Financial Post

This makes further dilution to develop a mine project unacceptable. This also makes a reverse split nothing more than an academic excercise. So your mining investment had better be licensed, in production and have cash flow.

As for exploration companies with no mill and dependent on dilution for their revenue, they will never be able to develop a mine now.

GBN.V was probably prepared to enter into full production into the new fiscal year starting April 1, using the EP Zone glacial till ore grade stockpile as their development capex. They are also forced to lay this card on the table now.

At the very least, they should be informing their shareholders of their plans, rather than fobbing them off with very limited and obsolescent information about the Roy Lloyd mine.

The gold price is set to continue its bull market, so you would be projecting your average gold price for the year going forward. If you accept that the gold price is set to make new historic highs, then GBN.V will have enough money to build a new mill by the end of the year, solely out of processing stockpiles. This rules out any free cash flow for dividends. (the Waterton deal places a prohibition on distributions)

The average of the high and the low since Fall 2011 gives you ~$1700/oz.

12 g/t X 1000tpd. (if my assumptions are correct) gives you 140,836 oz. for fiscal 2014 totalling $240 m. After taxes, that would mean ~$180m., if you meant to use the whole amount of production in both sub-contracting a mill by the end of the year and exploration.

This falls short of a 2000tpd mill, but would buy a 1500tpd. mill.

They could also go with the mill they have now, enter full production and pay out the overwhelming free cash flow in dividends, and only process the EP Zone stockpile later, when gold prices are higher.

Having the mine sit idle indefinitely is not an acceptable business decision.

-F6