Hello all,
Con't from the BOE report on SUF pg. 5; again the quotes are their words:
Other Klipspringer Operations
- Fissure system located along strike length of 6km, drilled to 500m depth and many drill holes lead mgmt to believe that consistency of grade and chemistry extend at depth.
- 3 adits on each of the east and west of the hill closest to the treatment plant; bottom adit is 400m in length, giving information on resource.
- Country rock is competent dolomite implying less dilution during mining process.
- It will cost about R10.5 million to develop 3.5km of the first adit system, with different mining methods being employed to develop the most effective method.
- the mining rate will be built up slowly, increasing to 20 tpm by year end, 40 000 tpm next year with all adits established, and finally a target of 60 000 tpm planned towards the end of 2000.
- Sugarbird blow yielded 76000 tonnes grading 78 cpht and diamonds valued at US$120, consistent with expectations from the Leopard fissure. The open pit limit has been reached, but the ore body continues below the current pit floor where the pipe is 10m in diameter. It is conceivable that mining will continue below floor level, although this resource has not been taken into account.
Klipsringer Mine
Resources: "Possible resource base of 5.5 million carats"
"The resource estimate consists of estimates of all sources including SUF's 40% share of Marsfontein diamonds."
Resource estimate:
Source Tonnes (000) grade Carats
M1 518 400 2072000
other Mars. 400 150 600000
Leopard fiss 2700 85 2295000
Other Klipsp 1000 50 500000
Total 4618 118.4 5467000
"We have a conservative estimate of the tonnage available from M3 pipe and further bulk sample tests are required to firm up the numbers. These resources are enough to sustain on-going operations until 2007, which places Klipsringer Project in the short life category. Management is aware of this hence the strong emphasis on exploration in order to extend the life beyond 8 years."
Valuations: "M1 is the highest grade kimberlite pipe in the world."
- M1 is wonderful, but small. It is providing a substantial cash flow to owners. After-tax value of the pipe is estimated to be US$ 300-400 million, including 200 000 carats in stockpile and values diamonds at US$150 per carat.
Comparative Analysis
(list of all the top pipes in the world with specs)
Operating Costs:
estimates: Open pit, US$20 per tonne, alluvial, US$15 per tonne, and underground/fissure US$28 per tonne.
Other Interests:
Angola - company has withdrawn from Luo and Cassanguidi.
- still testing Camafuca and has collected 15 000 tonnes to be treated in small plant on site.
- CJ believes the rim of the pipe contains higher grade and the pipe is undervalued, but this needs to be proven.
- the Camafuca pipe lies near a gov't stronghold and is unlikely to be attacked, although the civil war means that no guarantee of security of tenure to any property in the country is meaningful.
- valuation of Camafuca is C$0.70 per share using 10% discount rate. However, we do not include it our valuation of SUF due to the uncertanties in Angola.
"Canada: Exploration on the company's land has taken a back seat while it concentrates on developing Klipspringer which holds the most promise of future reserves."
"POOR INVESTOR RECEPTION IN CANADA"
- SUF has had a bad year trading on the TSE from 13.80 to 4.50, up to 9.00, then back to 7.00.
-"This after the company has done an excellent job in exploring and developing the Klipspringer Project, and the M1 pipe in particular."
-"Canadian investors are just too far from the company's primary operations and lack the understanding of, and commitment to, the company's operations. Apart from a few die-hard investors we believe that the shares are held in weak hands. South African investors, on the other hand, would love to invest in a Klipspringer Mine and would certainly give the share a higher rating than their counterparts in Canada. Our experience is that there is a high level of interest in the Klipspringer Project amongst local investors. A dual listing is not possible due to the south African Reserve Bank's exchange control regulations, thus we believe that management should seriously consider seeking a primary listing in South Africa."
Valuation:
Absolute Valuation: DCF per share, in $C
at 5% - $14.20, 7.5% - $13.14, 10% - $12.21, 15% - $10.70, and
at 3.5% - $14.93
"The current share price of $7.05 is well below the valuation of $14.93 per share."
Relative Values: "Canadian companies are discounted at a rate calculated by subtracting from the rate applied to De Beers the differential in the long term (5 years) inflation rates of South Africa and Canada, which is 6.71% per annum. This means that, for calculating the absolute and relative valuations, the discount rate applied to Canadian shares is 10.2% minus 6.7% equals 3.5%."
(This is followed by a complicated chart listing valutions, DCFs, P/Es, applied P/Es for 7 South African firms {Trans Hex, ICH, Gem, Ocean Diamond, Benco, De Beers and Anamint} and five Canadian firms {Dia Met, Aber, SouthernEra, Namco and DiamondWorks} which leads the writer to the following conclusion)
"The table illustrates that Canadian investors have downgraded their diamond share investments. A year ago the Price/DCF ratios of Canadian shares were about twice today's level."
Conclusion:
"SouthernEra will enjoy very high cash flow in the short term from M1 pipe mining. However, management states that dividends will not be paid for some years due to the need to develop the mine on the Leopard Fissure, which is perceived as the mine's long term 'bread and butter' deposit.
Klipspringer Mine has the potential to become the largest and most successful diamond operation outside of Venetia in South Africa. The lease area contains numerous discoveries of diamond significance and these will be proven in the next 12 months. The company has already made great strides in developing the project.
We believe that SouthernEra will be better served by South African investors that are hungry for a listed, classy onshore diamond mining company. We recommend, therefore that the company seriously consider moving its primary listing to Johannesburg.
The share rates as a BUY at C$7.05."
(Mercifully, that is the end.)
Very different way of looking at SUF; some in Canada see it for its lack of Canadian finds, while experienced South Africans discount Canada and insist the primary asset is Klipsringer in the long run.
Comments?
Regards,
Confluence |
