I thought I'd provide a summary related to the basement, low ball NPV that PGD provided in the Phase 1 PEA to the Longs, Analysts, Newbies, and Management, and outline where we can see incremental increases in both NPV and IRR. I'm still a bit taken back as to why such conservatism....I really hope that is simply the nature of the team's personality to build the model as robust as possible for their own credibility, and not for any, any (yes, I said that twice) other reasons.
Are you telling me you could not reasonably justify another 0.2% to the IRR to bring it into the 30's. Hmmmm.......Aside from getting an explanation on what the plans/options are (as broad as they may be), the reason for this conservatism on NPV is the question I most want an answer to.
On a scale 1 to 10, 1 being very conservative and 10 being very aggressive, I rate PGD's PEA 1.5 out of 10.
Potential Upsides NPV/IRR in the Short to Medium Term PEA/PFS (my interpretation from numerous PGD public reports and press releases, Mike's Blog ( https://chidliak.blogspot.ca/), JK's comments, Will's comments, and ideas from this SH Blog). IMO
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PEA slope angles used from 35 to 48 degrees. Expected that once geotechnical work is done, slope angle will increase. Right now, this results in a higher strip ratio and 13% and 35% left out of the PEA for CH6 and 7 respectively. Only 11.8 million carats for 6/7 are included in the PEA, versus 15.6 million carats currently inferred.
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Diamonds below depth of 260 m for CH6 and 240 m for CH7 not in PEA. 2.2 mT to 3.5 mT TFFE in CH6 and 0.9 mT to 2.4 mT TFFE in CH7. To be better defined in 2017 Winter Program.
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FX rate used in PEA 78 cents. Higher than recent other PEAs
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Discount rate of 7.5% used. 4 out of 5 comparative PEAs used 5, 5, 7 and 7%
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PEA assumes full cost to PGD for All Winter Road. Potential exists for sharing costs through Federal Infrastructure Program and/or Third Party (potential power line)
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Operating costs could be reduced by switching to LNG or Battery-Powered (remember, mining starts 4 years from now, technology moves very fast), from Diesel
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Diamond breakage in CH7 “all four geological units in the 2015 CH-7 bulk sample reveals that 75% to 90% of the diamonds were damaged, well over double what is typically found for large-diameter RC drill programs “ “ that the breakage observed has resulted in a 10% to 40% loss of carat weight due to minus 1.13 mm diamond fragments reporting to the sump during screening of the bulk sample at Chidliak “ This will increase both the diamond value and diamond grade, thus the ore value per tonne at CH7.
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The diamond valuator made some very clear comments in previous press releases. In the PEA, the diamond value used was considerablely less than the higher model average price valued by WWW.
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The winter program will further define CH6 and CH7, and will likely result in a change in sequencing with the highest ore value per tonne at surface likely mine early on. My personal thoughts are that Domain 5 and Domain 2 will show improved cpt and higher carat values.
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Diamond-bearing nodules have not been fully explained, understood, resolved, nor accounted for (I recall 3 of them being pulled from the analysis so as not to distort the numbers)
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With more funds in the medium term, further exploration at CH1, 44, 45, 46, 31 and Area B will no doubt be added to the mine plan.
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PEA uses 2000 tonnes/day for LOM of 10 years. As exploration continues, I can easily see a 3000 tonnes/day operation. Impact will be slight increase to capital cost, material increase to annual revenue, and material decrease to operating cost/tonne. Net impact = material change in profit margin.
Let's not forget about the other assests PGD has (see pdiam.com), which seem to be valued at zero in terms of the stock price.
Is this a $500 million NPV company? I think not. In terms of a PEA, in the medium term with some financing, NPV should range between $1 and $1.5 billion, IRR over 45%, just for CH6 and CH7. Then add everything else. Then pretend we're actually in a mining scenario where specials and coloured diamonds could come in to play. And perhaps there are some valuable metals also in place in-situ. Endless. Good luck. IMO
Normal Guy