Hello Paul
This is not the MPV thread and therefore I do not propose that we discuss the relative merits of that company here beyond my providing you with an explanation for my comments on my referenced post.
You are of course quite correct, MPV's March 1997 NR states that MPV is carried by DB's up to production, however, like so many NR's from junior resource companies, you really have to dig deeper or read the fine print if you will. For example, what is included in the term carried and what does up to production mean?
To quote MPV's 1998 Annual Report, DeBeers can earn up to 60% by spending money on the stock purchase, bulk sampling, bankable feasibility study and construction of the mine. Elsewhere in the AR, MPV states Monopros agreed to conduct an exploration program on the property, to complete a bulk sampling program and a feasibility study on one or more new kimberlites, and to fund the development and construction of a commercial mine.
Note that THIS DOES NOT SAY whether Monopros will fund ALL exploration costs, nor all costs associated with an environmental assessment, licensing, MVRMB hearings, community consultations, recruiting, training, ramp-up personnel costs, material & supply purchase and shipping, initial start-up or production expenses. In that regard, it is rather vague.
To give an example, and to again quote what MPV has published on the subject, DeBeers believes a bulk sample will cost no more than $18million. If that amount is exceeded, the MPV group must contribute 49% to expenses over $18 million.
It appears that there is a formal cost sharing agreement for the aforementioned subject that was not mentioned in the NR. It is therefore probably reasonable to assume that there are other such contributory or cost sharing clauses/agreements for the various steps leading up to actual receipt of profits. Another quotation, a bankable feasibility can cost as much as $25 million to $50 million, while construction of the mine can run from $500 million to $700 million.
In addition, it should also be kept in mind that the AK and CJ claims are not MPV's only properties under development. Again to quote, the company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral reserves that are economically recoverable. The recoverability of the amount shown for mineral properties is dependent on the existence of economically recoverable mineral reserves, the ability of the company to obtain necessary financing to complete exploration and development, and upon future profitable production or proceeds from disposition of such properties.
When the smoke clears, at $2.50 per share, if MPV has to raise say just $100 million for the AK and/or other properties, that is another 40 million shares. Whether there is no further change, or whether the share price is lower or shared accumulated costs higher, the dilution could reasonably be characterized as significant.
While I remain very optimistic about the geological potential of the AK claims to host yet undiscovered diamondiferous kimberlite pipes, I remain cautious about the potential of MPV to significantly appreciate. In short, I am not confident I know what all of the company's potential costs will be up to actual production and receipt of profits, nor am I confident that I know what management's commitment is to shareholders with regard to maximizing shareholders return on their investment?
To be more blunt, I don't think management has taken shareholders into their confidence. They do not appear to have published all of their agreements with Monopros, detailed all of their possible costs, nor put their long term plans on the table so to speak. I do not expect to be given any “facts” by a company IR employee that the company is not prepared to publish in their AR or register with the VSE.
Judging by the market's reaction to recently announced exploration success, I would suggest that its collective brain trust may share similar misgivings. Good luck however.
***
Hello Gemseacher
The following chart was published yesterday in the local paper. You have probably seen similar comparisons before, but I think it makes my case for the logic of investing in NWT diamond pipe exploration more graphically than my inadequate arguments.
WORLD DIAMOND KIMBERLITES
No Project/Pipe Loc. Company $/Carat $/tonne $Equiv.AU(g/t)
1. Marsfontein/M-1 RSA SUF/DB's 140 315 37.6
2. Diavik/A154S NWT Aber/Kenn 63 302 36.1
3. Diavik avg NWT Aber/Kenn 56 218 26.0
4. Diavik/A418 NWT Aber/Kenn 56 207 24.7
5. Snap Lake NWT WSP/Aber 98 181 21.6
6. Ekati/Panda NWT BHP/DiaMet 130 142 17.0
7. Tongo Fields Sra Ln Rex Mining 175 140 16.7
8. Jericho/JD-OD1 Nunavut Tahera 95 139 16.6
9. Jwaneng Botswanna DeBeers 92 129 15.4
10.Diavik/A21 NWT Aber/Kenn 38 114 13.6
11.Ekati/Misery NWT BHP/DiaMet 26 111 13.3
12.Ekati/Koala NWT BHP/DiaMet 122 110 13.1
13.Kimberly RSA DeBeers 110 110 13.1
14.Udachny Russia Alrosa 80 100 11.9
15.Hrn/Tuso/Tes/50 NWT MPV/DeBeers 65 93 11.1
16.Ekati avg NWT BHP/DiaMet 84 92 11.0
17.Leopard/Klip RSA Southernera 120 86 10.3
18.Diavik/A154N NWT Aber/Kenn 35 84 10.0
19.Venetia RSA DeBeers 60 77 9.2
20.Ekati/Sable NWT BHP/DiaMet 64 60 7.2
21.Jubilee Russia Alarosa 100 53 6.3
22.Ekati/Fox NWT BHP/DiaMet 125 50 6.0
Simply put, 12 of the world's 20 highest value per tonne kimberlites were found here in the NWT. Of the top 11, all but 3 were found in the NWT, and all in the last seven years. In fact, of the top 7 kimberlites, 5 are in the NWT.
You may note that no Brazilian or Angolan kimberlites are anywhere on this list nor on any more extensive lists that I have seen.
A comparison of overall deposit value will move some of the lower grade but larger pipes to the top of the list. However, the simplified fundamentals are, that it is the measure of ore value per tonne reduced by recovery cost per tonne times ore reserves times production capacity that determines a mines profitability. Economic NWT pipes typically meet these criteria with predictable paybacks measured in years but profits measured in decades.
No other kimberlites offer this combination. That is why the market gets excited by economic NWT discoveries like no other local on earth and why SUF's share price will respond to such an announcement.
On the matter of $2 million, I think we can afford it.
On the other point, I can't envision any strategic reason for keeping exploration results nor plans such a closely guarded secret.
Regards
P.S. Sorry for the chart formatting. I thought I spaced everything properly but I obviously don't know the necessary formatting technique. Any suggestions anyone?
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