Hello Frank
From Cannacords Morning Coffee
I found the suggested earnings to share price ratio interesting. Perhaps worth consideration in valuing SUF.
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Dia Met Minerals (DMM.B : TSE : $22.00 : Issued Cl. A 10.4M f.d.; Cl.
B 22.5M f.d.)
Today Canada's first diamond mine, the Ekati Diamond Mine (located 300
km NE of Yellowknife, NWT) will be officially opened, just over seven
years after the discovery hole was drilled at Point Lake near Lac de
Gras. The 9,000 tonne/day mine has come into production just under
its US$700M budget, on schedule, and with a remarkable safety record.
BHP Diamonds Inc., the operator, holds a 51% interest in Ekati, Dia
Met 29%, and two persistent geologists, Charles Fipke and Stewart
Blusson, hold 10% interests each. The mine life is expected to be in
excess of 20 years, and with 107 kimberlites discovered to date (seven
this past summer), the prospectivity of the property is seen to be
outstanding.
The stated mining reserves stand at 65.9M tonnes grading 1.09
carat/tonne (diluted), with an average carat value of US$84/carat in
five kimberlites. At full production in calendar 1999, from the Panda
Pipe, diamond production should be in the order of 3.5M carats with a
gross revenue value of over US$450M. We believe that the Misery Pit
development, scheduled for years 2-15, will be deferred until later in
the mine plan, being offset by the two newer discoveries of Koala
North and Beartooth. We would not be surprised to see other changes
in the mine plan as other pipes are evaluated. In year 10, the name
plate plant capacity may be doubled to 18,000 tonnes/day for an
additional US$80M.
Dia Met has pooled its production share with that of BHP in marketing
for five years under the project financing facility. A sorting
operation for valuation purposes is being established in Yellowknife,
and a marketing consultant agreement has been signed with I.D.H.
Diamonds N.V. of Antwerp (facilities there are under construction).
Negotiations with De Beers/CSO are ongoing, and we might expect a
sales agreement to be concluded fairly soon for perhaps 35-40% of
Ekati production.
The project as a whole should achieve payback in 3-4 years, assuming
successful marketing of production in these rather challenging markets.
Under the original joint-venture agreement, BHP would provide
financing for the project of up to US$500M, and Dia Met must repay its
share of the financing from 90% of net after-tax cash flow. We
estimate that the net after-tax, discounted (5%), cash flow net
present value for Dia Met would fall in the C$12-15 per share range,
and that after-tax earnings in 1999 (accounting for a full 29%) would
be in the C$2 per share range. On earnings, a 15-20X multiple does
not seem unreasonable.
Dia Met is also actively exploring for diamonds in Finland and
Greenland, with other joint-venture partners. The stock remains a BUY.
Ekati Diamond Mine Statistics 100% Basis (table not available in email
version)
David James (204) 988-9602
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I guess we will see both on the price and importance of Birch.
Interesting times.
Regards |
