Boom - Discount Rate 23%I've had another math thought and I believe that NPV to Market Cap or Capital cost to Market cap is not easy to compare project to project.
I've taken a different spin and focused on Discount Rate to Market Capitlization.
I've updated the bottom of my NPV #1 calculation --
Chidliak NPV_1
The logic here is that as you get closer to mine production and construction and more importantly the time you can get full construction financing for the project, the NPV @ discount rate = interest rate should get a fair market value for the market capitalization of the company.
Follow me?
Stock might trade at a premium if rough diamond prices have gone up or as they find fancy diamonds above and beyond expectations.
Stock might trade at a discount to fair value if there is possible risk that capital cost may overrun or operating costs may go up.
My NPV #1 calculation assumes just 1 open pit at CH-6 and we mine out the TFFE and inferred resouce down to 250 metres only. That is it.
I've assumed the warrants get issued in April and we end up with 300 million shares x 21 cents...which is about 60 million market cap.
@ that market cap, the discount rate that is being used is 26%.
That means that if Robert Friedland stepped up and said he will loan the company as much $$'s as it needs to get the mine into full production @ an interest rate of 26%, then we are fairly valued.
Now, I've made some comparisons to SWY.
Back in 2007, they were able to get a loan @ 12%. That is basically 10 full years before they see full production at the minesite.
@12% discount, we should be seeing an NPV of $400 million and we only have 5 years left (in my estimation) to get the CH-6 (only) open pit into production.
I've also included the 2 loans for SWY from 2014.
As we get closer to 2018/2019, we should be getting closer to those interest rates as our discount rate.
In 2018/2019, we could be looking at an NPV of $900 million (fair value @ SWY interest rates).
If the market continues to give Chidliak a 26% discount for valuation purposes...then we will be looking at a 70 million to 90 million market cap in the next 12 to 24 months.
Point here is the bulk sample should do 2 things. 1 - Get us 1 year closer to mine production...which brings revenue forward 1 year closer. 2 - Reduce risk in the project by giving the market more real information, this should reduce the discount factor that is currently being applied by the market.
LONG...PGD
EKIM