Hello Peter
I am not sure I entirely agree. As the old saying goes, cash in hand is better than paper profits and promises. There are always variables that can only be guessed at.
I do not suggest that there are any similarities with Bre-x here, but you need only imagine the surprise of their shareholders who were millionaires one day and losing there houses the next! Did anyone expect that 1) the Chief Geologist would commit suicide?, 2) Bre-x didn't have 90% but rather 40%?, 3) There was no gold?, 5) All those respected analysts had not really done their homework and were recommending a stock based on adrenaline rather than research?, 5) Large percentages would be effectively eviscerated from the play by non-participants?, etc.
Life (and mine development) is not predictable, even in Canada.
Mandella will die sooner or later. There may or may not be an orderly transition of power. There may or may not be a democratic government. Angola may or may not respect contracts, the rule of law or remain at peace. Dr. Jennings could suffer an accident or fatal illness. The Dogrib could refuse to allow any more mine development due to disruption of Caribou migration. The list is endless.
If or when there is a take over play on Southernera two things will occur: a) Southernera will retain several respected specialists to define assets and assign a realistic market value on the companies' operations, inventory and prospects. b) Management will attempt to interest other suitors in an effort to establish a competitive bidding climate, (E.g.: Diamond Fields/Inco/Falkonbridge/Teck).
Shareholders of record will receive adequate if not absurd remuneration in return for tendering their shares. Would you prefer to receive $500/share now or the possibility of $500 to $1000/share eight years from now?
Philosophy aside, the argument is probably mute.
The company has now established a value for Klipspringer. They have done their Leopard fissure bulk sample and will do their Sugarbird fissure bulksample later this year. They have now established realistic and reliable value to every tonne of ore mined. They will be undertaking a Feasability Study now which should be completed late this year. It will be a road map and "performa" that the company can use to finance mine development next year. Development of the Leopard and I believe the Sugarbird fissures will be relativly economic as they can be minded from multiple adits rather than from headframes due to the hilly geology of the site. Production levels can be relatively high as ore can be moved in higher volumes. What the company will probably attempt to do is to use their alluvial revenues and those from this bulk sample to finance the Feasability Study rather than dilluting the stock values by returning to the market.
This is a conservative company and Chris Jennings has made no secret of the fact that he would like Southernera to be a world class producer. So, barring a takeover, one of two things will probably happen: I) Kennecott currently holds 17% of the company. Rather than diluting shareholder equity, Southernera may negotiate with Kennecott giving up 60%+ of say the first three Canadian pipes in return for the pipes and the company being carried through to Canadian production, and/or II) having established the resources within the Leopard and Sugarbird fissures and the potential of the remaining site, rather than issuing more shares at $9 per, and diluting shareholder equity, Southernera will secure a loan against Leopard production and/or assets putting Klipspringer into production.
At a conservative production of say 3,000 tonnes per day or 2,040,000 carats per year, net revenues would be $250,000,000 per year or loan pay-back within twelve months.
The company need only expend modest amounts on the Camafuca and Canadian pipes to maintain momentum and meet obligations. Once Klipspringer is debt free (one year) it can finance Camafuca development and eventually Canadian development.
Barring a takover, I would bet II) is Jennings preference.
One other variable in the companies' and other diamond play's favor. Australian and Russian production is likely to fall off in the near future. Current average carat valuations could easily double or better speeding loan pay back.
I would think Southernera would want to get the Camafuca into production as quickly as possible after Klipspringer as they will probably want to exploit that asset before politics changes the equation. As much as Canadian pipes and revenues will lend stability to the company and its revenue stream, it will take at least 8 - 10 years from any announcement to get NWT pipes into production. Diamet found pipes in 1990 +/- and they will be in production in 1998.
However, when everything is said and done, and while I would love to have a nice equity stake in a world class diamond producer, I would prefer to have $$ in my pocket now rather than the promise of it in three years.
Regards |
