I stepped out. May re-enter with a stink bid if the opportunity presents itself. I expect it should drift down for the rest of the yr. barring a "Surprise" turn of events.
Mountain Province and Camphor wait again at Kennady
Mountain Province Diamonds Inc MPV
Shares issued 50,272,170 Apr 17 close $0.67
Thu 17 Apr 2003 Street Wire
Also (CFV)
by Will Purcell
Mountain Province Diamonds Inc. and Camphor Ventures Inc. received more bad
news on Tuesday, with word that De Beers, their partner on the Kennady Lake
project, had decided against proceeding with a prefeasibility study at this
time. Both stocks had been halted in Canada prior to the news, but Mountain
Province's shares took another big drop on Nasdaq, dipping to an intraday
low of 37 cents (U.S.), or about 54 cents in Canadian currency. It was just
over a month ago that Mountain Province hit a peak of $2.26, amid hopes
that De Beers would produce higher diamond values and push the Kennady Lake
project to feasibility and on to production. When the modelled diamond
values were lower than expected, Mountain Province's shares lost about half
of their value, and they were halved yet again on the latest news. Despite
the market's reaction to the clearly disappointing delay, there was some
good news in the updated desktop study, and that should help De Beers and
its partners to ultimately meet the required rate of return for the Kennady
Lake project.
The updated desktop study now pegs the cost of a Kennady Lake mine at about
$600 million, up slightly over the initial version prepared in the summer
of 2000, but still well in line with rough estimates that have been
unofficially touted for years. The cost is encouraging, as it compares
favourably with the $1.3-billion that Rio Tinto and Aber Diamond
Corporation shelled out to bring the Diavik mine to production, and it is
also significantly lower than the $900 million that it took BHP Billiton to
bring the Ekati mine to production in the late 1990s.
The significantly lower capital cost at Kennady Lake is a hopeful glimmer
for two reasons. The proposed Gahcho Kue mine consists of three primary
kimberlite pipes, all of which are submerged within Kennady Lake itself, a
situation quite similar with that at Diavik, although the water over the
Diavik pipes was significantly deeper than that covering the Kennady pipes.
Still, an open pit mine would require the three pipes to be encircled by
water retaining dikes, which can be quite expensive to build.
The comparatively modest capital cost is also a bit of a surprise as the
proposed mine would be run at a greater rate than previously planned. The
updated desktop study now proposes processing kimberlite at a rate of about
5,500 tonnes per day, or two million tonnes per year, which is actually a
bit higher than the 1.5-million-tonne-per-year rate proposed in the initial
Diavik plan. The Diavik plant is rated at about 1.9 million tonnes per
year, and it will likely be run at something close to that mark.
Nevertheless, a Gahcho Kue plant will apparently be capable of handling
more kimberlite than the Diavik plant.
De Beers was also able to lower the operating costs of a Gahcho Kue mine in
a big way, and that is a greater shock. The initial desktop study had
estimated operating costs at about $81 per tonne, which seemed comparable
with the value of $89 per tonne contained in the Diavik feasibility study.
The updated version of the De Beers study now pegs operating costs at just
$56 per tonne, a significantly lower value for a mine running at a
comparable pace. The Diavik operating costs for mining were estimated at
about $30 per tonne, with an additional $12 per tonne attributed to
processing and a further $25 per tonne allotted for infrastructure and
services. As well, the Diavik operating costs included $21 per tonne for
running offices in Yellowknife and at the mine site, as well as for
contingencies. It is not known just how the Gahcho Kue costs would break
down, but De Beers apparently believes that it can run things more
efficiently than Diavik.
Those figures would suggest that the project is not that far from meeting
its required rate of return, despite the significantly lower revenues
expected from the two key pipes. The 2000 study used a grade of 1.64 carats
per tonne and a diamond value of $69.30 (U.S.) per carat for the AK-5034
pipe, which worked out to a rock value of about $114 (U.S.) per tonne. The
AK-5034 pipe, with a resource of 13.1 million tonnes, is still the flagship
of the Gahcho Kue project, but the rock value has now declined to about
$105 (U.S.) per tonne, based on a revised grade of 1.67 carats per tonne
and a modelled diamond value of $62.70 (U.S.) per carat.
Things were more disappointing at Hearne however. The 2000 study used a
grade of 1.71 carats per tonne and a modelled diamond value to arrive at a
gross rock value of about $122 (U.S.) per tonne, but that has now declined
to just $83.50 (U.S.) per tonne, based on a grade of 1.67 carats per tonne
and a modelled diamond value of just $50 (U.S.) per carat. The resource at
Hearne is estimated at 7.1 million tonnes.
The weighted average of the rock value in the 2000 study was about $117
(U.S.) per tonne, but the latest update of the desktop study had lowered
that figure to approximately $97 (U.S.) per tonne, a decline of about 17
per cent. That disappointment triggered the initial sell-off early this
month, but the latest decline suggests that speculators have chosen to
largely ignore the 31-per-cent decline in the estimated operating costs.
With capital costs remaining nearly flat and with the decline in operating
costs outstripping the drop in the modelled rock value, it might have been
reasonable to expect that the internal rate of return would have shown at
least a modest improvement. That was not the case however, and a strong
Canadian dollar was cited as a big factor in the slightly poorer result.
The Canadian dollar has gained about 8 per cent against its U.S.
counterpart in recent months, and although there is relatively little
difference in the exchange rate prevalent in the summer of 2000 and that of
today, the numbers used in the latest update of the desktop study
apparently are based on a healthier Canadian dollar.
Despite the apparently unfortunate timing of the De Beers update, improving
world economies have been having a positive impact on the rough diamond
market of late, and the next update of the desktop study might well deliver
the required rate of return. With the significant reduction in operating
costs, changes in the rate of return will likely be largely dependent upon
variations in the exchange rate and fluctuations in the diamond market.
Mountain Province president, Jan Vandersande said that De Beers had no
plans to take additional samples from the pipes that are currently in the
mine plan, as a sufficient number of carats were now available to model the
value of the diamonds.
That does not mean that the AK property will be idle in the coming months
however. De Beers will be continuing with a busy exploration program, with
much of its efforts concentrated in the area to the northeast of Kennady
Lake, where two potentially economic kimberlites are being delineated. If
that work can outline a significant amount of kimberlite with a good rock
value, it would have a positive impact on the rate of return for the
project as well.
Developments somewhat further afield could have a positive impact on the
project as well. De Beers has been an active diamond hunter across much of
the South Slave region, but some of its ground has been tied up in an
ownership dispute since the mid-1990s. The company is partners with GGL
Diamond Corporation on the Doyle Lake project, immediately to the south of
the AK property, and the southern portion of the claims have not seen much
work since 1996, when the ownership was called into question. Just who owns
the Doyle Lake claims, as well as the Kidme property just a bit farther to
the south, should be resolved imminently. Once the matter is settled, the
Doyle and Kidme projects should see a flurry of activity. As well,
SouthernEra is now drilling on Misty Lake property and Diamondex is poking
around on Kelsey, immediately east of Kennady Lake. A diamond find on any
of these properties could potentially have an impact on Gahcho Kue.
In the meantime, shareholders of Mountain Province and Camphor appear to
have a yearlong wait ahead of them before De Beers updates its desktop
study once again, although there is a reasonable chance that the company
might be prompted to recalculate the numbers early, if conditions improve
significantly.
That possibility will likely carry little weight with speculators who
suspect that De Beers is dragging its feet on the project however. Many
speculators remain convinced that the modelled diamond values are
intentionally lower than what the actual diamond parcels would be appraised
at, but that is not believed to be the case, at Hearne at least. Like most
junior partners participating in an advanced project, Mountain Province
does employ an independent consultant, Overseas Diamonds, to assess the De
Beers results, and a valuation of the diamonds was completed as part of
that process. As well, the desktop study was not entirely a De Beers
process, as a number of outside consultants participated as well, including
AMEC E&C Services Ltd., which has performed scoping, prefeasibility and
feasibility studies for several other diamond projects, and the company
played big roles in the development of the Ekati and Diavik mines.
Conspiracy theories aside, there is a good chance that the modelled values
for Hearne and AK-5034 are quite conservative. The latest modelled results
allow for a potential upside of about 20 per cent, based on the estimated
uncertainty of the projections, and that alone could close the gap, once
Gahcho Kue is in production. Some of that additional hope results from the
presence of a few very fine diamonds in both Hearne and AK-5034. A
9.9-carat stone in AK-5034 was appraised at $60,000 (U.S.), while a
3.4-carat gem in the latest Hearne sample was valued at $7,140 (U.S.) per
carat. Those stones compare favourably with the best stones found in the
two Diavik bulk samples, which produced many more carats than the more
limited testing of the Kennady Lake pipes. The best Diavik diamond in its
bulk sampling program was a 7.9-carat stone that came from A-418, which was
valued at $22,120 (U.S.) in the spring of 1999, while a six-carat gem from
A-154 South was appraised at just over $10,000 (U.S.).
Investors were still in a sour mood on Thursday, two days after trading
resumed in Canada. Mountain Province was unchanged at 67 cents, while
Camphor remained in the ditch at 30 cents. |
