recent Kaiser commentFinancial Times writes as if Gahcho Kue Mine a sure thing
Three mines? We know Snap Lake obtained mine approval on June 1 and that De Beers is working hard to permit Victor, but isn't the economics of Gahcho Kue still up in the air? The $25 million program started in January 2004 will not be complete until about this time in 2005, so where does a Johannesburg based journalist interviewing Gary Ralfe get the notion that Gahcho Kue is a mine in the making? Well, the answer lies in the notion that De Beers is becoming desperate about securing its future diamond supply, and perhaps the idea that Gahcho Kue is a lot more valuable than initial numbers suggest. On June 16 De Beers reported significant increases in the modeled values of the 5034, Hearne and Tuzo pipes based on its diamond price book as of March 2004 compared to January 2003. The value of 5034 increased 18% from US $62.70 per carat to $74.20 per carat. Hearne increased 22% from $50 to $61, and Tuzo increased 18% from $41.50 to $49. These are staggering price increases De Beers attributes to strong demand. Isn't the Chinese middle class just getting started, and here in the United States are we not just barely escaping from a jobless recovery? What if the global economy really starts to cook over the next few years? If we get similar price increases compounding over the next few years at rates that are well above inflation, the profitability of Gahcho Kue would soar. (Oh yes, I forgot, a Kondratieff winter is coming.) The important thing to remember about Gahcho Kue is that it contains a population of large high quality diamonds of which not enough examples have been found to allow meaningful quantification in the modeled values presented by De Beers. Mountain Province Diamonds Inc (MPV-T: $2.03) and Camphor Ventures Inc (CFV-V: $0.65) probably woke up this week because somebody has been reading all this press about De Beers and concluded that by this time next year De Beers will be in a position to make takeover bids for Mountain Province and Camphor. And if further evidence beyond the US anti-trust settlement develops which indicates that De Beers has plans to go vertical in the United States with its own De Beers branded mine supply, no shareholder will accept an offer based on the value of rough diamonds De Beers feeds into the supply chain via its Supplier of Choice program. They will want a big premium and De Beers may be willing to pay it or risk all sorts of trouble down the line.
*JK owns shares of Camphor