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Gold/Mining/Energy : Canadian Diamond Play Cafi -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (2628)	3/13/2005 1:57:48 AM
From: WillP	Read Replies (4) \| Respond to of 16206

Well, they are, and they aren't... De Beers has the marketing rights, so Aber doesn't get any diamonds. They just get the difference of revenue minus costs. Based on De Beers's numbers, a 36-per-cent share of the project brings in about $88-million annually, on average, and the stated operating costs will run to about $40-million. The difference is $48-million. That's what Aber would get every year, for 10 years (20 million tonnes / 2 million tonnes per year). It could be less, if De Beers tacks on added management charges, as many operators do. Of course, Aber will have to pay back that $220-million it cost to build their share of the mine, plus interest at LIBOR + 5%. A logical guess on that interest would take the full payment north of $250-million. That'll take up five years or more of the 10 years worth of $48-million pre-tax payments. The remaining $250-million that Aber gets, presumably some time in the late 2010s, would not cover that $270-million in shares that were issued, presumably in the mid 2000s. The prefeasibility study numbers are going to be crucial to this project. But, ignoring the marketing rights issue: If Aber's existing shareholders see their carats per share grow by 0.0122, according to your figures, the next question is, what do those carats cost? Well, there's the cost of acquisition of MPV, which works out to $280/58 = $4.82 per share, or $0.48 per share per year. Then there's the cost of the mine and interest, which works out to $250/64.75, or $3.86 per year, or $0.39 per share per year. Then there are the cash costs to acquire those carats, or $112-million * 0.36 / 64.75 million shares = $0.62 cents per share per year. In all, that's $1.51 per share per year for the existing shareholders. The average cost of those extra carats therefore is $1.51/ 0.0122 = $125 per carat. Those are Canadian dollars, so at 80 cents, its about $100 (U.S.) per carat. A major problem with this calculation is that many of the costs occur well before the revenues arrive, and should therefore be subject to some escalator factor. I won't bother for these rough calculations, and will simply stay with $100 (U.S.) per carat. According to De Beers, those Gahcho Kue diamonds are worth how much? That's what makes the economics of Gahcho Kue so critical to the existing partners, who don't have to pay any premium to gain an interest in the project. Regards, WillP