Here is an preliminary to the PEA analysis based on everything rolled up into a per tonne of inferred kimberlite.
*Information in this current blog is based on information obtained up to mid 2018 and should be considered legacy at this time and should no longer be relied upon.*
Summary:
9.8 million tonnes @ CAD$431 per tonne rock valueTotal cost per tonne (inclusive capital/operating) = CAD$122
Profit margin per tonne (post tax) = CAD$216 per tonne
post-tax profit per year = CAD$172 million
Mine life = 12 years
Details:
A lot of information is out there on what the inputs will be for revenue. Not a whole lot on the cost, especially the capital cost side and that will be the biggest question answered in the PEA. The PEA (preliminary economic assessment) is just that, preliminary...so these costs, etc. can be change as studies and progress is made on the project.What is known to date?
Inferred resource at CH-6 is 3.323 million tonnes @ 2.58 cpt @ valuation based on the model and what the QP decides to use.
A resource update is coming and the biggest change to CH-6 is an addition of 1 to 1.2 million tonnes.
Why this range?
The remaining TFFE (Tonnage for future exploration) above 250 metres is 1.833 to 2.014 million tonnes and this is the range that they are trying to convert to inferred for the PEA.
CH-6 is made predominately of KIM-L material. This is the high value material. However, there is another material called KIM-C or other minor types. The ratio above 250 metres is about 80%.
Based on quick calculations..you get about 800k tonnes of the TFFE into the KIM-C material. So, that means the TFFE for KIM-L is between 1 and 1.2 million tonnes. This range could be do to the total outside boundary of the pipe or even the boundary wall between KIM-L and KIM-C.
Safe to say, all the high value stuff, above 250 metres will be converted to inferred and the KIM-C material will stay as TFFE. That means, if they want any further KIM-L material to be added to the inferred, it will have to be deeper than 250 metres.
So, assuming 1.2 million tonnes of KIM-L does get converted, you end up with 4.5 million tonnes for the PEA.
CH-7 on the other hand will basically try to convert all material above 250 metres to inferred. Based on some calculations, this will lead to 5.3 million tonnes.
Quick assumptions can be made for this analysis and can be confirmed as new data is released.
CH-6 - 4.5 million tonnes @ 2.58 cpt @ US$200 per tonne
CH-7 - 5.3 million tonnes @ 1.10 cpt @ US$125 per tonne
1 CAD = 0.72 US
total - 9.8 million tonnes @ CAD$431 per tonne rock value
Assumptions with costing:
Open pit operating cost = CAD$75/tonne
Capital cost = CAD$500 million or CAD$51/tonne
Total cost per tonne = CAD$126 (before tax benefit)
Deferred Tax benefit = CAD$125 million x 30% tax rate = benefit of CAD$37.5 million
or CAD$4/tonne
Put that as a perk against the cost per tonne.
Total cost per tonne = CAD$122
Profit margin per tonne (post capital and operating cost, pre-tax) = CAD$309 per tonne
Tax rate = 30%
Profit margin per tonne (post tax) = CAD$216 per tonne
mill rate? Aim for a 12 year mine life.
So, that gives an annual capacity of 800K tonnes.
post-tax profit per year = CAD$172 million
This whole analysis is simplified (doesn't include discount rate and doesn't calculate NPV or IRR). It focuses on what money a tonne of kimberlite brings in and what it costs to mine and process that tonne of material inclusive of capital/operating and all costs.
Reality is the capital costs are brought in at the start of the project (negatively effects NPV, etc.)
and the higher value C-6 material is also brought in at the start of the project (positively effects NPV, etc.)
These 2 will cancel out each other a bit, but there will still be some chances.
If it changes 10% to the downside, that is still CAD$155 million per year. (after tax)
If it changes 20% to the downside, that is still CAD $140 million per year (after tax)
So, you can see that a project with an enterprise value around CAD$30 million that should easily generate over CAD$100 million (post-tax) per year down the road for a dozen years should be quite appealing to the investor.
ps. the CAD$500 million in capital cost is an assumption that probably easily change.
A quick calculation will show that a change of CAD$100 million in increments adds or subtracts CAD$10 to each tonne mined and processed. That translates into an annual difference of CAD$8 million.
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