Hello Confluence
This one may be the record so tough it out Shaw. Here I go…
If the pipes already discovered at Yamba looked economic, why has no one, including SUF (having just had a more detailed look), become excited?
There may be any number of possibilities:
1. The results simply may not be back from the lab yet?
2. SUF's incredibly frustrating sequenced news release policy on NWT plays?
3. Analysis suggests borderline economic numbers and therefore the news is deemed not to be “material”?
4. Analysis suggests none economic numbers and therefore the news is deemed not to be “material”?
More money down the same hole isn't the answer.
Diamond exploration is the business SUF is in. Make no mistake about that. Yes they are prudently putting the fruits of their exploration into production, but as LB stated, it is the company's objective to, at the very least, replace production with new resources. That can only be achieved through exploration and while Klipspringer offers immediate promise of short term resource replacement, it is not elephant country. The NWT is the only place in the world where 13 new economic kimberlite pipes have been discovered in the past ten years. Economic pipes here average roughly +$3,000,000,000 of value each. Sugarbird blows and even M-1s are simply not in the same league.
You cite the P/E multiples from Barrick and Placer as examples of value from "local" production. I'd suggest that cash flow multiples would be more appropriate, but in any event would note that Barrick's biggest acquisition in recent memory was that of the Pierina (Arequipa Res) property in Peru, hardly a hotbed of democracy or stability, and Placer just did a huge deal in good 'ole RSA for an undercapitalized project in the South Deep area, the largest undeveloped gold project on the Witwatersrand, along with initiating construction (to the tune of $575 million) at Las Christinas in Venezuela, yet another banana-type republic, while just announcing today that exploration expenditures would be slashed. So, contrary to your opinion, it seems the larger mining firms are picking up foreign reserves with much work already done, ahead of domestic situations.
You are confusing two issues. It is not a matter of where a company chooses to invest to grow its reserves. That is easily and routinely done regardless of market support.
It is a matter of when and why the market IS AND IS NOT prepared to assign 100% or more of the value of a company's assets to share valuations.
When I talk about third world assets I assumed that you understood that I was making a graphic simplification for the purposes of brevity. Obviously the issue isn't geography, nor is it any one issue, but I think it can be reasonably captured within the context of definition of “security”, security of assets and investment and security or assurance of life time profit projections.
The market wants to know that what it is investing in is safe and secure, that tenure is unquestioned and that the playing field is level. That the rule of law applies no matter what.
When SUF was unilaterally stripped of 60% of its ownership of the M-1, I repeatedly posted that the market would not forgive the RSA for years to come. I hammered away in posts suggesting that the RSA should and must publicly compensate SUF with other publicly held resource assets to the tune of the lost asset value plus compensation for SUF's trouble. I wrote the Minister of Mines to this effect warning him that the RSA would suffer in the long run for allowing SUF to be stripped of their rightful property.
It is possible that Messina may have been such compensation. Certainly picking up a $15 billion asset for $11 million is astounding. However, there has never been any public suggestion that Messina was made available by the RSA as compensation and therefore permanent ownership even of it, I am sure, is a concern in the market's mind(s).
Our assets in Angola also can hardly be categorized as secure, and there is ample and growing evidence that the government there is as corrupt and graft based as most on that continent.
The market will not give fair valuation to assets in either of these two countries for the foreseeable future.
Brazil is certainly the economic giant of South America and perhaps the most dynamic economy, but the market is also well aware that it was only a few years ago when the government effectively legislated significant public ownership of many nonrenewable resources. The market has no confidence that a change of government or economic crises would not see foreign ownership of natural resources targeted. Regardless, beyond the concern with ownership, the market is also well aware that to date, it has simply proven uneconomic for any company to mine diamonds in Brazil. No alluvial or hard rock diamond mining operation to the best of my knowledge has ever proved profitable. I am not saying that one won't be, but the market will not get excited by our Brazilian assets until these issues can be put to rest, and that will take years.
Yes ABX and PDG have foreign assets, but they are anchored by substantive North American and tenure assured third world mines. The market does not perceive that the company's profitability can be gutted by an asset loss or production interruption in any one foreign country. Think about it. These are companies who's profit margin is effectively only dollars per tonne right now, and factoring in forward sales, profit margins still only run $25 to $50 per tonne. SUF runs with a profit margin of over $100 per tonne and yet its P/E is 4.5 times lower. There can only be one explanation for this market discrimination.
Points to SUF for thinking like the big guys!
I don't think so.
The situations of Dia Met and Aber, upon initial discovery of their world-class deposits, is a case of that-was-then, this-is-now. Firstly Dia Met took every one by surprise (except CJ who was staking ground for Aber and SUF), and followed this with several unheard-of results, eventually leading to Canada's first diamond mine. It is very important that this is Canada's first, afforded greater respect, greater admiration, greater following than all others to follow. Aber developed spectacular results, several economic pipes, but has wallowed because it's #2, with development OKs not yet in hand. Other seemingly economic deposits have been found by MPV and WSP, and while the market has afforded both firms decent valuations, they're a far cry from the levels attained by Dia Met and Aber previously. WSP had impressive results just last week, and the stock is lower, with ore that has been valued at US$181/ton. Put this discovery in RSA, and SUF would've had it in production already, not been encumbered with the thought of more and more bulk sampling to firm up feasibility (next winter?). I'm not sure I'd want the 4th or 5th mine near Lac de Gras.
Take a look at yesterday's market performance – this is now, not then.
ABZ +$.25 to $12.75 (no earnings) Canadian diamond assets
WSP +$.65 to $ 4.45 (no earnings) Canadian diamond assets
SUF -$.49 to $ 4.81 ($.84/share earnings) African diamond assets
MPV has languished, in part, for the same reasons SUF does, the market does not believe that asset ownership will remain as it currently is. MPV will have to come up with a significant chunk of change to pay its share of Kenady Lake development. It does not have the cash and therefore must either dilute shareholder equity, borrow or give up further equity. There is also some question about management's commitment to shareholders and DeBeers commitment to production.
WSP does not have pipes and therefore probably can not produce at more than 5,000 t/d with a cost per tonne 2.5 times what an open pit operation would run. Therefore, the market knows that there is a limited upside with unlikely blue sky discoveries. In addition, there is some asset ownership litigation hanging over the share price, plus questions now about grade consistency, fancy content and average stone size. Many of these wrinkles can be resolved in time except the first, and therefore WSP will never be valued at the levels DMM and ABZ will.
Regardless, the issue is not comparative valuations between Canadian diamond miners, but rather comparative valuations between Canadian miners with and without ownership assured assets.
And now the natives are restless (hands out?).
If you mean to imply that the aboriginal peoples of the NWT are demanding pay-offs you are grossly misinformed and in error. Simply put, the Dene, Dogrib, Metis and Inuit peoples of the NWT and Nunavut have quite generously and understandably demanded only one thing of diamond mining companies, that the land, the water, the air and the wildlife on which they depend for survival and the maintenance of their cultures, be largely unaffected by the construction and operation of these mines.
The Government of the Northwest Territories in addition to agreeing with and insisting on the aforementioned, have also demanded that any such resource development include as much as is economically feasible, the maximization of northern employment and business opportunities. This is no different than Alberta insisting on the processing of its oil, or Newfoundland insisting on the processing of Voiseys Bay ore.
In other words jobs will not be allowed to be exported overseas along with raw resources. In Canada, nonrenewable resources are owned by the people. Secondary processing of the NWT's resources will be a requirement of resource exploitation by Canadian and multi-national corporations.
Sounds fair and equitable to me!
SUF has not just done the same old things (Brazil, the Messina platinum deal), but I'll agree that what SUF is doing is not working for shareholders. Plainly, all shareholders deserve better value for their stock. I think most would agree that SUF needs to communicate their vision, plans, news, etc. in a better way. They say they are taking appropriate actions. I'd like to see this speeded up dramatically, but, well, that's SUF. Always a little slower than you might expect. I do believe that the excellent technical abilities of SUF will eventually be exposed. For example, as Messina gets a bankable feasibility study, as low cost production at Camafuca is demonstrated, as new discoveries at Marsfontein/Klipspringer are unearthed, as production/discoveries in Brazil emerge, the share value will progress. Will this happen tomorrow? No. Has SUF disappointed previously? Yes. Does this hurt today share price? Yes. Will the "hot money" look for other places to play? Yes (look at the seller from TK).
Sounds as if we agree here, except I am not willing to shrug and say, all good things comes to he who waits. In this case I think we both agree that they will, but I am arguing for a strategy that should eliminate the waiting period.
Rex Diamonds, while not a favourite of mine, has un-profitable fissure mines in the RSA and large blue sky in Sierra Leone. Sound familiar? Except that SUF's fissures will be nicely profitable (and aren't 500m deep yet!), and SUF's blue sky in Angola has been somewhat quantified, production costed, and seems better protected from unfriendlies (and SUF didn't have to finance the revolution, or was it counter-revolution?). Rex, RXD on TSE, has gone from 73 cents to the $2.80 range recently.
If I may, I would suggest that RXD's blue sky is in Mauratania rather than Sierra Leone, the former country having demonstrated a long history of peace, pro-investment policies, safety of tenure and rule of law, the latter, quite the opposite. In addition, the President of RXD has been buying up company shares to support the price and a DiaMet/Ashton joint venture leant credibility to the play, by their announcement to pursue exploration last month.
You comment that SUF is "Blindly following a course of action to the exclusion of all evidence to the contrary is not a whole rational policy" is unfair/wrong. SUF has the results from Munn and Yamba, and in my mind, are better suited to weighing this evidence than either you or I.
Weighing what evidence? Yes they are more qualified to analyze technical data but they have an obligation to share that information with us. I am sorry, management is not my father nor big brother. They are elected by us and answer to us. I have not seen any evidence nor to my knowledge have most shareholders. We have been promised Margaret Lake results, and have not seen any. We have been promised T-10 and Ptarmigan results and have not seen any. We have been promised fall geochemical sampling and spring geophysical, magnetic and electro-magnetic survey results, and have not seen any. We have been promised a Yamba Lake and apparently a Munn Lake drilling program, and have not seen details or schedules of any. What evidence? We learned more about Munn Lake this morning from Russett's post of IAR's NR than any of us knew up until now. Based on that NR I will tell you right now that there is real potential to mine that dike, but you would never know that by any information shared with us by SUF.
Frankly, I am sick and tired of this shroud of silence and piece meal information release and I think there is ample market evidence that a number of other shareholders are too. I made that quite clear to CJ in an exchange of correspondence yesterday and I am hopeful that my concerns did not fall on deaf ears.
As I said before, their technical ability to weigh these facts is precisely why I own this stock. I believe they are being quite rational. Don't confuse irrational (crazy) with unlucky (not finding an economic pipe in NWT - yet).
Don't worry, I won't.
SUF should actively seek out sellers of their stock, completely inform, and then if a sell decision is still in force, help to arrange an orderly transfer to those who would be buyers. While I believe SUF has made efforts in this regard, they have not done enough to protect their shareholders (us) from economic harm. I believe this will correct, but if you can't wait, then you must find another answer.
I am sorry Confluence but there is another option. Like it or leave it is not the only solution nor is it an acceptable one. I do not agree that SUF should invest in any price support or share buy back schemes. I have presented ample evidence of another option and the company need only make an effort to explore the potential and validity of that option to see if there is any merit in it. Take the capital you suggest that they spend in share buy backs and invest it in Yamba Lake target drilling. Find a pipe or two and publish some economic numbers. There will be plenty of demand for shares then.
You state that SUF is "ignoring or de-emphasizing Canadian asset discovery is a short sighted and misguided." Please disclose how you know that SUF is ignoring, or hiding something. They say they are not. In person, they admit disappointment to not having the huge NWT discovery. And they've turned their efforts elsewhere.
I think that sums it up! If you are saying that you were told by management at the AGM that they are “turning their efforts elsewhere”, then I want to see that in print from management. They previously and relatively recently announced a summer drilling program at both the Munn and Yamba Lake properties and if there has been a reversal of that decision, I have the right as a shareholder to know about it. In addition, if management is going around whispering privately to you and others that they have no intention of fulfilling in good faith their announced plans, I think I have a reasonably good excuse to be bloody p…. off!
"Capital goes to where it will be rewarded today not tomorrow."Couldn't agree more with this statement. So long as portfolio managers, fund managers, etc. concentrate only on this month's or this quarter's performance, then the hot money will go to internet stocks, and the like. For my money, over the long term, I like, understand and appreciate the value approach. Benjamin Graham, Warren Buffet, Charles Brandeis, etc. have been successful because they looked down the road a few years rather than concentrating on the flavour of the month.
I think we all do, but that is not the point of my post. The RSA's and management's disregard for the reasons for last year's short term price slump has been at the root of the reason it is still with us. To my way of thinking, until there is an economic NWT/Canadian/Australian discovery announced and/or Messina and Brazil are in significant and sustained production six years from now, our share price will continue to substantively underperform similar investments. The portion of SUF that free trades is not owned nor managed by portfolio managers, fund managers, etc. God help us if those big boys start to get impatient. Rather, it is small and/or aging shareholders who influence the daily share value and they do not have that kind of endurance. Enduring low prices will be a self-fulfilling prophecy as they continue to sell out.
Finally, I will agree to disagree with you. And suggest, again, that you should discuss your issues not with me, but rather with CJ, KF, LB, HB or whomever at SUF you feel could best respond to your concerns.
As I said above, I have. CJ and I traded correspondence yesterday and I am hopeful some questions I posed will be answered, and suggestions I made, considered worthy of investigation.
Time will tell.
Regards
P.S. Thanks to Shaw, Russett, Gemseacher and anyone I missed. |
