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Gold/Mining/Energy : ASHTON MINING OF CANADA (ACA) -- Ignore unavailable to you. Want to Upgrade?

To: Paul Belecki who wrote (5770)	7/22/1998 5:01:00 AM
From: Ann A List	Read Replies (1) \| Respond to of 7966

Thank you everyone for your comments. I was expecting a chorus of boos. I think it is important to stress how my "simple analysis" was not a valuation, but merely a statement of feasibility. A valuation would be based on the current value of something similar to an annuity that would pay a series of cash flows over the expected life of the mine. The current value would be determined by the risk free rate, plus "fudged" to reflect additional risk over the course of the investment. I didn't want to get into this because: 1. Its too complicated. 2. There are too many uncertainties. For example, not all of the cash flows are paid out. Some are retained and used to grow the company. You get you pay off in capital gains, right? Well, it depends. If the retained earnings are for MSFT you do, but if they're for ACA to find an additional mine, you might never reap the rewards. I simply don't know what the probability of this is, nor do I expect does anyone else. Figures from "Revenue to NPAT" are not immediately comparable because they reflect each company's share of the resource. So, while ACA's depreciation expense appears higher than DMM's, it is actually lower, to reflect the costs implicit in Alberta versus the NWT. To answer Denis' question, yes you can plug different grades and values in the model and come out with different answers. In fact, that's exactly what I've done. I've got figures and graphs) for nearly every scenario. I simply picked .6 ct/t because it was on par with the Orapa pipe. What is more, it was right in the middle of everyone's guesses. The reason you can do this is that harvesting diamonds isn't like making cookies. Your total costs are almost all fixed; there's very few variable costs. The effect is that marginal costs (the cost associated with each additional unit of "output" or "diamond found" is quite small. In short, for each additional carat produced, most falls to the bottom line. Hence, you can increase the revenue side of the equation without fundamentally changes the assumptions implicit in the cost side. This matter leads me to another one which I should've made clearer. The marginal cost issue means that tonnage is very important. Personally, I think that K91 could have tonnage on its own that exceeds that for all the pipes in both the Etaki and Diavik mines. Now if K14 and K11(?) also some on-line, the we'd really have a screamer of a profitable mine. Other matters: John Kaiser is a very good analyst, especially for someone following the situation from Palo Alto. People who pay money to receive his newsletter get their money's worth IMHO. I simply disagree with him on the expected life of the mine, operating costs and capital costs. To be fair to him, he's only talked about these things in a vague sort of way. He wouldn't venture to do what I've done here because its not professional. In short, he doesn't have the luxury of my anonymity. Now, if we're talking about PPPs or HMOs, I'm loaded with neat insight.