Hello Gemsearcher
***OFF TOPIC***
Further to your PP, I don't have much to add really to the ABZ announcement discussion, but I think people and the market are over reacting. The big boys must be smacking their lips as they now have a second chance to load up in 1999 at fire sale prices.
Several years ago I suggested that ABZ probably would not be in production until at least 2003 and possibly not until 2005. You can imagine the reaction I received especially on the ABZ thread. The environmental lobby is still at work on this play and while I personally don't think they have much of a case, the Canadian courts have recently been a little unpredictable (see Jasper area mine decision).
Regardless, the news is not really material, not in the long run. Frankly, whether the mine costs $875 or $1.3b, so what, development costs are fully deductible from profits!
To quote David James in his March analysis, two years production from A-154S (3.2mt @ 5.2c/t and $63/c) would generate revenue of over US$1b and a pretax operating profit ofUS$850-900. The upper section of A418 would pay back the capital cost in just one year.
So now maybe it takes two years, its a hick-up.
If the mine is built two years later diamond prices are likely to be +/-20% higher and the already incredibly steep payback period will remain roughly the same. The cost increase will be roughly off-set by the profit per tonne increase, and that is where investors really should learn to focus their attention.
The capital cost is not material and even many of the operating costs are deductible. That $85 per tonne operating cost is not as onerous as it sounds and is not fully deducted from the bottom line.
Some posters continue to suggest that some how Camafuca or even Klipspringer / Marsfontien are somehow more attractive.
PLEASE PEOPLE, LOOK AT THE NUMBERS!!!
I keep repeating, you want to find open pit diamond mines in the NWT more than anywhere else in the world.
Capital cost really isn't the issue, its the profit per tonne mined, production tonnage, accessible reserves, tenure and operational security that count.
Camafuca may have difficulty producing at a profit of $5 -$20 per tonne. It's stones were most recently valued at $100/carat with a total recoverable resource of only 8,700,000 carats or $870,000US from 26,000,000 M2. Considering the grade, security costs and production tonnage, I would be astounded to see $15,000,000US in annual profit from Camafuca.
As near as I can tell, it appears that Diavik's profit per tonne will average somewhere around $160 - $180US depending on the prevailing prices and tax regime at that time. They will produce 7,000,000carats/anum from 1,500,000 tonnes and have a resource of 101,500,000 carats in 25,600,000 tonnes for an average grade of 3.96 carats/tonne. Average annual profit for Diavik should run +/- $270,000,000US with A-154S initially contributing roughly $380 to 425,000,000US net for the early years.
For what its worth people should also keep in mind the attractive way the Canadian tax and royalty structure treats mine development.
Diavik can deduct all of their share of mineral exploration and pre-production development costs and there are resource allowance deductions that generally exceed the disallowed deduction for mining taxes. In short, they can right off (depreciate) their investment over a very short time frame if they so choose and royalties are not due until a number of costs are written off. The NWT levies no Capital Tax and there are Federal Regional Development and Manufacturing & Processing tax incentives.
Take a look at the new Canadian Mining Regulations, royalties are reduced for NWT diamond mines and they are only calculated on profits not simply on production.
As near as I can tell, and admittedly, I am no expert but the federal mining royalty regime in the CMR provides for annual deduction of a processing allowance of 8 percent of the original cost of processing assets (the mine physical plant) located in the NWT up to a maximum of 65 percent of the value of the output of the mine prior to the deduction of the processing allowance. Such an allowance is necessary to insure that the mining tax is only imposed on profits from mining, not processing, if revenue for the mining tax are based on the sale price after processing.
Additionally, there should be no Excise Tax since ABZ is not manufacturing the diamonds they sell and I believe no Export Tax on rough sold from Canada to the US or Mexico as they are signatories of NAFTA which presumably means that Tiffany's gets their diamonds tax free.
Summary:
- 21.84% Federal Corporate Income Tax Rate after 25% resource allowance
- 25% depreciation rate deduction on a declining balance basis
- Accelerated Capital Cost Allowance - expenditures deductible on new mines to the extent of income from the mine
- 30% declining balance Intangible Development and property Expenses -claimed as Canadian Development Expenses (inclusive of haulage!)
- Fully deductible Exploration Expenses (CEE) - can be carried forward indefinitely
- 14% NWT General Corporate Income Tax rate
- 0% NWT or Federal Capital Tax
As regards the question of where and when the next bolt of lightening will come from that will ignite SUF?
Well, the thread already knows my answer to that...
If current indications remain consistent and site drilling does not commence shortly, then don't look for a big boost in SUF until March-May 2000 with junior partners realizing somewhat earlier appreciation.
The inability to produce at higher rates or realize 100% of profits at Klipspringer and Marsfontien probably will keep the market from getting too enthusiastic about any significant SUF discoveries that might be made there.
The market is not going to get excited about Munn unless SUF discover a pipe at either end of that dike (unlikely) and unless testing comes back with some significant gravel grades and values in Brazil, the market will not overheat on any news from there either.
Rather than wasting Capital on buying back shares, SUF should be drilling where the market will reward success.
But what the hell do I know?
Regards
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