From Will P on DDC...interesting to compare to PEAOf PGD, albeit not as complete:
Robert Gannicott and Brendan Bell's Dominion Diamond Corp. (DDC), up 40 cents to $11.70 on 474,000 shares, has received its full feasibility study for the Jay project at Ekati. The results were sufficiently encouraging that the company has given approval to proceed with development of the big open pit mine, which carries a $647-million (U.S.) capital cost. The company projects Jay with a 13-year life, compared with just 11 years in last year's prefeasibility study, with production slated to begin in 2022, two years later than planned in the earlier study. That will push Ekati's closure date -- and the associated closure costs -- to 2034, providing a significant financial benefit.
Despite the optimism, Dominion needed some rosier than usual assumptions for Jay to achieve its post-tax internal rate of return of 15.6 per cent. While the capital cost came in $10-million (U.S.) less than the $657-million (U.S.) calculated in the prefeasibility study, and while the projected operating costs were $60 (U.S.) per tonne of mined kimberlite, compared with the earlier estimate of $68 (U.S.) per tonne, the savings were achieved by boosting the predicted exchange rate to $1.33 per U.S. dollar, compared with just $1.10 per U.S. dollar in the prefeasibility study. That could be overly optimistic, as it roughly matches the worst 18-year stretch the Canadian dollar experienced, which ran from the early 1990s through the mid-2000s. The weak Canadian dollar accounts for much of the Jay optimism. At the previous exchange rate estimate, the rate of return drops to about 10 per cent.
Dominion also adopted a rosy stance on the value of the Jay diamonds, which were recently modelled at $53 (U.S.) per carat, compared with the $64 (U.S.) per carat assumed in the prefeasibility study. While the latest estimate is probably conservative, the company assumes that rough diamond prices will increase by 2.5 per cent above inflation over the life of Jay. There is undoubtedly room for growth early on, as rough prices are well below their 2011 levels in most stone and size classifications, but a sustained increase handily outstripping inflation for nearly two decades would be unprecedented. (Nevertheless, there are many precedents for diamond companies riding similar escalators. Unfortunately, companies that tied their forecasts to rosy price predictions in past years have fared poorly.Nevertheless, Jay stands a good chance of being a solid source of cash for Dominion, helped by some innovative approaches added after the company completed its prefeasibility study. Dominion is planning to make a $40-million (U.S.) upgrade to the Ekati processing plant to better handle the Jay kimberlite. The company is also planning to use the Koala and Panda open pits, now just big holes in the ground, to hold the processed kimberlite from Jay. As well, Dominion proposes to use granite from the Lynx pit to build the 4.5-kilometre-long water retention dike that will surround Jay and it plans to use the Misery and Lynx pits for water management once the company starts draining the water above Jay.