Big Diamonds - The "what if" game
Marine2 ....Thanks for posting the article "big Diamond, but no mine". As near as I can tell it was written up on the National Post July 03 2008.
To restate its essence:
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"...a whopping 25.13-carat diamond has been recovered at its Gahcho Kue deposit in the Northwest Territories. The "perfect ice crystal" is valued at $440,000 (or $17,500 a carat) and is thought to be the biggest gem-quality stone recovered from a Canadian exploration program..."
"..."To recover a diamond this size in a small bulk sample is very unusual, and very encouraging for the project,...".
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The chance of finding a diamond of such size and such value is remote BUT having found it can be interpreted to mean that this was an extremely lucky event OR that there is a notable population of larger stones in the deposit. I gather that the optimists are leaning toward the latter.
So I thought I would would play around with some numbers to see what that might mean.
There are approximately 50 Million carats in the deposit (just using round numbers). If we can say that this represents 50 Million stones which is a simplification for this exercise, then we can play around with some numbers.
If the chance of finding some other large stones is defined as per the following table, we can put some numbers to this "large stones" thing.
Chance of 1 in 1.0 Million of finding 25 carat stones - yields 50 stones - @ $15,000/ct = $18.75 Million
Chance of 1 in 100K of finding 10 carat stones - yields 500 stones - @ $15,000/ct = $75.00 Million
Chance of 1 in 10K of finding 5 carat stones - yields 5,000 stones - @ $15,000/ct = $375.00 Million
Chance of 1 in 1,000 of finding 1 carat stones - yields 50,000 stones - @ $15,000/ct = $750.00 Million
The Total Equivalent Gross Sales Potential (TEGSP) due to "Large Stones" using the above rationale and assumptions is - $18.75 + $75.00 + $375.00 + $750.00 = 1,218.75 Million
Translating this into "value" at the share price level using a factor of 0.15 x 1218.75 = $182.81 Million.
With about 75 Million shares outstanding for MPV and with a 49% particpation this translates into $1.19 per MPV share (i.e. 182.71 x 0.49) /75)
NOTE: I coined the TEGSP because a) I absolutley object to using term "Value in the Ground" because it is "in the ground" alright BUT "Value" it is not. AND b) it is misleading to ordinary investors who are prone to taking this number and dividing by the number of shares and incorrectly trumpeting what the deposit "is worth".
Now if the Chance of finding 1 carat stones is actually around 1 in 100, then the number of stones increases to 500,000 and say they ONLY SELL for $10,000/ct , the TEGSP jumps to $5.0 Billion!!! This number when added to the existing TESGP's for 5, 10 & 25 carat stones yields a TOTAL TEGSP of $5.468.8 Billion.
This $5.468.8 Billion translates into "value" at the share price level using the a factor of 0.15 x 5468.8 = $820.3 Million which when allocated to MPV's share at 49% on the basis of 75 Million shares outstanding translates itself into a Per Share Value for T.MPV of $5.36 ($820.3 x 0.49/75).
I checked over the calc's a couple of times (and found some errors).So, you may want to check my calc's just in case.
Anyway, depending on how you happen to feel on any given day, it looks like the "large stones" have the potential to ADD anywhere from $1.19/share to $5.36/share of T.MPV. (just used the "rosey" hi-lite for dramatic effect).
For those of you who are more familiar with diamond size distributions and the Prices for each size, you could probably improve upon this approximation.
Oh, and one more point to those who have more recently "tuned in". I have posted here from time to time since the early part of this decade. I am in NO WAY familiar with or associated with the ever popular oracle, MLB.
Just thougtht I would clear that up for those who might be confused about that.
And I thought I would the size of the print up a notch from "12px" to "14px".
My thoughts on the matter FWIW.
All the Be$t,
LB