Stockwatch June 12, 2014Ken MacNeill and George Read's Shore Gold Inc. (SGF: $0.24) is the chief optimist in the Canadian diamond sector. Shore's feasibility study assumes diamond prices will rise 3.5 per cent above and beyond inflation each year its Star-Orion South mine operates, and for good measure it tacks on a 15-per-cent boost to its base-case modelled diamond valuation before it steps onto the speedy escalator. The importance of the price escalation is evident in the companies' sensitivity analyses. For example, Stornoway says without its escalator, the discounted net present value of Renard would drop from $391-million to $85-million, after taxes. Shore Gold, which projected a discounted net present value of $2.1-billion for Star-Orion South, avoids directly mentioning the effect of removing its escalator. Still, its numbers suggest its valuation would be negative without the 15-per-cent bump and subsequent price escalation.