That can be looked at several ways Dean., first if you believe the
diamond industry can support prices without DeBeers controlling the
market., then Mountain Province can develop the deposits with or
without DeBeers. I would suggest you read the fine print offered by
the company in regards to earn in on the AK properties. If you feel
that world diamond prices will fall as a result of DeBeers lack of support then Mountain Province could market the stones outside
conventional CSO channels. If you study the JV arrangement., DeBeers will be forced to either make a production decision after feasibility
or forfeit their future earn ins. It is quite apparent that DeBeers has
fast tracked the deposits., and if world diamond values from existing
producers show a greater than 15% or higher internal rate of return
the project will move forward. Obviously you nor I can predict what
the diamond market will look like in the year 2000., factors such as
global demand raw prices., polishers., and end product distributors
may have something to say about that. But having been around this
industry from the early 90s., and evaluating deposits., usually assets
showing an internal rate of return over 15 will result in a production
decision. It might be wise just to go and view the amount of deposits
that fall in the above category on a global scale. They can be counted on your hands., in a weakening diamond market even those
producers will be obscenely profitable. A 4.4Billion asset in this market
will be recognized for what it is a very profitable mining project and will
be duly rewarded either by increased asset valuation or production
decisions after feasbility. If world diamond prices remain weak., it will
work in DeBeers favor to accumulate all profitable diamond deposits.,
or at least have control of the marketing. The high end of the market
large stones remains strong., so DeBeers as well will take a keen interest in large scale projects., or small rich deposits., such as Southernera. BTW that is DeBeers forte., large tonnage deposits.,
to strenghten their overal position., it would seem the small rich deposits worldwide would become eventual targets providing they
could use a marginal boost in profits from those areas.
Most of these corporate production decisions are projected well into
the year 2000 and beyond. Your analysis is simplistic at best considering history has shown projects with internal rates of return
mentioned will be brought to production., let alone the clauses forcing
DeBeers to make production decision on Mountain Province. If you
believe the Japanese economy or the world economics in the year
2000 wont be better than what currently exists., then you might have
a valide point. Most major projects worldwide take 4 to 7 years from
inception to production. 18 of the current producers are obscenley
profitable., those with marginal economics are many and the ones
that take the hit with soft diamond prices., The russians want to open
the Mir., to help with marginal operations at Orapa., It is quite obvious
that DeBeers will value highly any small rich deposit., providing the
numbers are crunchable., to bolster the high end of the market of which they have internal weaknesses. example Southernera hijacking. of the Marfonstein., small rich deposit. The companies best
positioned to benefit in a weak or marginal market are those positioned in the high end of that market. The future producers of
Sierra Leone., Angola., Nambia., to a lessor extent the Congo producers,. any producer with large stones and high gem quality will
be rewarded in this market. Thus far I see no relative difference between Mountain Provinces potential of 30mil plus tons and Abers
movement towards production. Both will be obscenely profitable in
the context of greater than 15% internal rate of return. Mountain province should exceed this easily with diamond values in the current
projections. Should diamond values exceed 60.00 per carat it will
be an added bonus and incentive towards production. The diamond
distribution in the Heane looks very good., as good as the best in
Abers pipes. So a worldclass deposit should it unfold will not be ignored. Mountain Province has the enviable position to sit with no
cash outlays all the way to production. Providing the management is
responsible not to dilute current shareholders., this company has all
the earmarks of fitting into the future diamond producers worldwide.
Take care., I would suggest you get a copy of Rhombouts report.,
and see just how many producers with pipes fall above the 2.0 Carat
range.
Sincerely
George J. Tromp |
