Post by
BESAKOA on May 28, 2019 9:58am
Renard basic economics - no brainer: All the details!
Thank you all for your comments. Allow me to spell out the details for you:
((20.885 Mt*0,814 c\t) + (4.227 Mt*0,576)) / (20.885 Mt+4.227 Mt) = Average diamond grade of 0.77 c/t (Probable reserves + Indicated resources as of Dec. 31, 20118)
No. diamonds declared sold since Q4 2016: 3,208,947
Weighted average of declared 30-month diamond sales: US$92.51 per carat
Weighted average US$/C$ 36 months (2016-2018): 1,3065
Weighted average of declared 30-month diamond sales in C$ = 92.51*1,3065 = C$120,86
Mill recovery rate: 98 %
Ore value per tonne in-situ = (Average diamond grade of Probable reserves + Indicated mineral resources) * (Weighted average of declared 30-month diamond sales in C$) * (mill recover rate)
= 0.77 * 120,86 *0.98 = $C 91.20 $/t
Thus, the diamond-bearing ore in the ground is currently worth $91.20 per tonne.
Basic underlying principle in mining: For a mine to make money, it has to cost less to mine and process the ore than what the ore is worth (OpEx per tonne must be less than in situ ore value per tonne)
Regardless of the SWY’s declared OpEx, the range of OpEx for an underground mine in Quebec with a mill processing rate of 5-10,000 t\d is 100-150 C$ per tonne (if you do not believe me, do your own surveys of OpEx costs).
Thus, at 7,600 t/d, based on comparable underground mines in QC (the substance being mined is irrelevant, mining cost depend on mine design, and engineering and geotech aspects), it costs SWY an absolute minimum of $C 100 per tonne to mine ore that is that is worth C$ 91.20 per tonne. This is the No-brainer part of my expose! At 7,600 t/d, Renard underground can not make any money.
To make money using the basic parameters listed above (no consideration of reported improving diamond grades at depth, no consideration of improving markets prices for small stones and no consideration of the upstream ore sorting plant that was put in in 2018 at a cost of $ 20 M which should translate into a better recovery rate for large stone (remember in Q1 2018, Renard produced a 37 ct Type IIa, D colour, internally flawless stone that sold for $1.7 M (45 000 $/ct) !!!)), you have to up the mining and processing to an absolute min. of 10,000 t\d (you only get economy of scales in OpEx for an underground mine at that that level of mining and milling).
Now, to your second point, I did say my simple analysis did not factor in debt (CapEx).
Now, for your final point, which is what is the point off my first ever bull board note, simple: Over 2 B $ has been spent putting Renard in commercial production to date (access road construction; Mine and mill; Tailings Management System (TMS) upgrades and Mill upgrades). If I were a major shareholder, I’d hate to see SWY go under and get 1-5 cents back for every dollar I put in during liquidation. I would study all options to salvage the mine, one of which is obviously upping the mining and processing to an absolute min. of 10,000 t\d.
Finally, if I were an experienced and wealthy underground miner, with $2 B spent on Renard, a mine which steadily pumps out and sell over 100,000 ct each month for the past 30 months, a mine with enough resources left to operate for a minimum 10 more years, a mine with the potential for yield +30 carat stones and I could buy SWY for $37 M and get Renard as a bonus, I would clearly take a good look at the project.
But then again, I am just a simple SWY investor…
Good day All!