RE: Large Diamonds in Demand!! - Impact on NPV
Marine2 et al:
To re-cap and hi-lite from your most interesting and informative post:
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"...A price analysis and forecast by Ken Gassman, an analyst with the International Diamond Exchange, confirms Even-Zohar's predictions for large stone."
The price increase...
1) For smaller stones-2 carats and below was modest - from 1.3-5.8%.
2) For 3-carat stones, prices rose 30.2%
3) For 4-carat diamonds, prices increased by 51.6%, and for 5-carat stones prices gained 57.9%..."
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With respect to the above increases in prices in recent forecasts, I attended the Vancouver Resource Conference back in January, 2008 and happened to take in a presentation put on by Stornaway Diamonds (T:SWY) who had an EXAMPLE of what would happen to the NPV (Net Present Value) as diamond prices grew at a rate of only 3%. The NPV in their example ROUGHLY DOUBLED (i.e. 2X). I can't recall offhand the Discount Rate they used for their NPV.
Regardless, it appears from the above forecast by Gassman that the 3 - 5 % is easily accomplished with SMALLER stones. With a greater proportion of LARGER stones as in 3-carat stones with a price rise of 30.2% and 5-carat stones with a price rise of 57.9%, the NPV of the EXAMPLE Project would easily BLOW THROUGH the 2X area quite easily. In the Case of Mountain Province, with considerably higher Capital Costs than what would likely be contained in the Stornoway example, NPV's would also be similarly MUCH HIGHER but perhaps not lock step with the 2X as foreseen in the Stornway Example. One would have to do a DCF (Discounted Cash Flow) analysis more specifically tailored to the Mountain Province case to see just what effect different concentrations of larger stones would have on the NPV of that project given the different price projections for each of the various stone size ranges. In ANY event, given the view of the future that is available at his time, I would expect that we would see considerably LARGER NPV's than guys like John Kaiser were playing around with a year or two ago. I think at that time Share Prices in the $6 - $8/sh were being bandied about. So I think with a little imagination, it is quite easy to see that Share Prices greater than that are quite possible.
Thanks for your post.
LB