If you want a clear understanding of why MPV is bouncing, look to the "insitu" value of the deposit. De Beers has approved the estimated tonnage and grade numbers at 35MM tonnes at a projected value of around U.S.$100/tonne. That implies a value of U.S.$3.5 billion in the ground.
In a NORMAL environment that pays little heed to global deflation or eroding commodity demand (including diamond demand), in order to discount the length of time until cash flow is realized, to adjust for the risk associated with the outcome of the major bulk sample, to adjust for mining costs and capital costs, and to adjust for overall market risk, one should value the deposit(s) at 30% of "insitu", or U.S.$1.05 billion. MPV has 36% or U.S.$378MM after discounting and dividing by 44.3MM shares, one would arrive at U.S.$8.50 per share.
However, it is apparent that the tape is factoring in the following:
1. A much greater risk associated with the bulk sample;
2. A longer time line until production due to the (incorrect) impression that De Beers will mothball this deposit until global demand improves;
3. An utter collapse of the CSO's effectiveness in maintaining diamond prices.
IMO, the ONLY possible pratfalls are in points 2 and 3 because the deposit is a superb one in terms of grade AND engineering.
Finally, if anyone in this forum believes that over the next decade, male humans will continue to buy tiny, brilliant pieces of condensed carbon as a means of enhancing their standing with their spouses, mistresses, or fiancees, then you all must believe that 1. the CSO will survive as it has for the better part of this century and 2. that MPV is one hell of a cheap issue, given that it is trading at around 18% of the DISCOUNTED asset value per share.
Incredible. |
