AFA - huge potential left - in spite ofyesterday´s take off
Afri-Can Marine Minerals - AFA - (rough) calculation example of their diamond project :
https://www.afri-can.com/
https://media.richmondclub.com/Luncheon/Afri-CanApril1107_files/Default.htm
Disclaimer : I take no responsibility whatsoever for any errors, bad conclusions, important facts missing etc that might affect my analyses and their readers in any respect, but I always try to keep the facts accurate, as well as the calculations with their usually simple mathematics. Sometimes even the companies analysed deliver false information which could be impossible to detect for me and many other interested parties. In general I trust the corporate information and use it for my analyses. The future can´t be predicted 100 % and the stock market in particular is associated with considerable risks on the company level, but also on branch-, country- and world market level, implying that each person has to take their own full responsibility of the consequences of buying this particular stock.
Do your own due diligence !
Calculated 2007 stock price potential CAD 2.19 , CAD 0.235 April 20 close
Afri-Can Marine Mineral´s Resource Development Manager has 32 years of experience in posiotions at De Beers, with 11 of those years as their Geological Manager. He lead the teams that discovered major diamond deposits on the midcontinental shelves off South Africa and Namibia. Afri-Can Marine Minerals NI 43-101 report estimates a total diamond potential content to up to 1.6 million carats on about 25% of the mineralized area in Block J . The company has a 70 % share of Block J and has found presence of two big deposits that contain diamonds of the same quality as its neighbouring competitors’ deposits. The deposits are of comparable size to the largest deposits exploited in the neighbouring geological environment. Diamondfields and Namco have delineated Inferred Resources of 4.1 million carats in a fluvial-aeolian deposit of the same size as the AFA discovery in their Block J. De Beers and Namdeb have resources of 8 million carats in a gravel waves deposit covering twice the size than the one discovered in Block J.
Let us assume that the potential content to up to 1.6 million carats on about 25% of the mineralized area will be realized in the upper end and that there are 4 times that figure on the whole (100%) mineralized area, with an assumed value of USD 276 for each carat. This accounts only for the near "surface" and therefore there might be a potential for further "deeper" findings also not included in this calculation.
I assume there will be 180 million fully diluted shares in the future as a calculation base covering more capitalization via PP, USD=1.13 CAD and a 50 % profit margin after taxes. Furthermore I assume revenues of USD 276 per carat, and that the production time will be around 10 years with all profits averaging 6 years from now.
Then the net present value would be around CAD 1.13 x 0.7 x 0.5 x 6.4 x 276 /(180(1.1 ^6)) per share in a quick estimation discounted with a yearly 10 % rate of interest, thereby resulting in a net present value potential of CAD 2.19 per AFA share.
This means that the AFA stock could rise over 800% , if such a possible diamond discovery of 6.4 million carats is confirmed.
With a smaller resources or reserves, AFA should have a proportionally smaller potential or there around according to this simple calculation, since in such a case the overall profit margin after tax might decrease somewhat, but on the other hand the weighted average production time should also decrease thus elevating the present value/carat. I assume that these two factors approximately neutralize each other.
Thus roughly, in analogy with the above, you may calculate the Approximative net present value of the AFA Stock Price Potential known as AAFASPP(r) as a function of the future reported AFA diamond resource, r, in million carats as
CAD (r x 2.19 )/6.4 or around CAD 0.342 x r
Thus AAFASPP(r) = CAD 0.342 x r
which hereafter is named as my AFA-formula, version (1.1)
The risks and uncertainties are obviously very high in AFAs case. The calculated potential is not the fundamentally based expected fair value of the AFA stock, i e a 2007 stock price target, but just a stock price potential which is very much sensitive to the real magnitude of the diamond resources or reserves (as shown by the ”AFA-formula”) which are yet not known to the stock market. Anyhow I find that AFA could have an extremely attractive risk/reward-ratio, maybe of a similar magnitude as in the TAM case recently before their stock price tripled in just a few weeks ! In that case though the value of the property was known already before the "take-off" making TAM a little more obvious and less risky revaluation case in my view.
Anyone with other input data can, as always, change these figures easily and do their own rough, simple and I think very useful calculations for an absolute and relative stock valuation purpose.