Friday, July 24, 2015

Risk Reward Part III

Update February 12th, 2016

Peregrine Diamonds have just released earnings and as of Feb. 11th has CAD$7.2 million in working capital.  CAD 9 cents - Enterprise value is CAD$22.7 or US$16 million.

With potential (after tax) cash flow of US$120 million for 10 years the Price to (future) Earnings ratio is an unheard of 0.135. Price to (future) earnings ratios should be multiples of...not fractions of.
Update February 11th, 2016

The stock has now traded at CAD 9 cents.

That again would equate to an enterprise value of about US$18 million.
With potential (after tax) cash flow of US$120 million for 10 years the Price to (future) Earnings ratio is an unheard of 0.15. Price to (future) earnings ratios should be multiples of...not fractions of.

This is a huge opportunity for any new investors looking at big returns in the future.

How to invest in Peregrine Diamonds? -- Number of ways to invest in Peregrine Diamonds.

Update February 10th, 2016

Peregrine Diamond's (owner of Chidliak) is now at an all time low share price at CAD 10 cents.

There are currently 339 million shares outstanding and the company just raised CAD5.6 million in the bank.

Market valuation currently sits at CAD$33.9 million. Take away about CAD$5 million (cash on hand) and you end up with an equity value of CAD$28.9 million.

Convert to US currency and you end up with
US$20.8 million

This is the lowest valuation of Chidliak and Peregrine Diamonds in a very long time.
Anticipation of new valuations for CH-7 and more importantly a maiden PEA (preliminary economic study) will be coming up.

What are the assets/costs going into the PEA study?

CH-6 = 3.323 million tonnes @ 2.58 cpt
plus  - 1 to 1.2 million tonnes added before the PEA gets started.
You end up with about 4.5 million tonnes @ 2.58 cpt.
The carat price is around US$200 per carat.
So, you are clearly walking into a PEA with around US$2.3 billion worth of value from CH-6.

On top of that, you will also have the maiden CH-7 inferred resource and valuation (TBD).
That could add anywhere from US$250 million to US$1 billion depending on the valuations, the tonnage and how deep an economic pit would go in a PEA study.

Total assets values would be around US$3 billion.

Capital Cost? Anywhere from CAD$400 million to CAD$800 million depending on trade-off studies, mill size, road type, etc.  Let's assume CAD$600 million. That leaves US$430 million in capital cost.

Operating Cost? Open pit (very little overbruden, no lake on top)...the strip ratio should be good. It should easily be under CAD$100 per tonne and probably closer to CAD$75 per tonne. That leaves about US$55 per tonne. Assume CH-7 comes in at 4.5 million tonnes like CH-6. That leaves a cumulative operating cost of US$495 million.

Total cumulative operating cost and capital cost = US$925 million. Let's round up to US$1 billion.

into this PEA, you get an asset of US$3 billion and a cost of US$1 billion.

Potential cash flow is US$2 billion spread out over a 10 year mine life.

Gives you an annual positive cash flow of US$200 million for 10 years.

You have to pay taxes/government royalties. Crank that up to 40% (which is probably quite high).

You end up with a positive cash flow after tax of US$120 million.

A project that can generate over US$100 million (after tax) of free cash flow each year for 10 years is currently worth US$20 million.

The stock is basically trading at 0.2 x future earnings.

All this will come out of the PEA when it gets released before the end of the first half of 2016.


Update January 7th.

With 2 circuit breaker's in China happening in one week, there is plenty of opportunity to revisit hte risk/reward for Chidliak.

The news for CH-7 bulk sample will literally be out any day now and the pressure has been mostly negative on the stock..which creates a very huge opportunity.

CAD$ is down to $US 0.71.

The stock hit CAD$0.115 per share which equates to a market cap of US$23 million.
The additional 1 to 1.2 million tonnes added to ch-6 will already add  US half billion to the asset and that doesn't include the impending CH-7 data.

13:01:18T0.115-0.01550,0007 TD Sec7 TD Sec
13:01:18T0.115-0.01530,0007 TD Sec7 TD Sec

The risk/reward is at a huge opportunity right now.

Update Dec 15th.

Pretty close to the eve of CH-7 bulk sample results....some of domain 2 material is still making its way down the diamond recovery process.

15:24:09T0.12-0.024,0002 RBC79 CIBC
15:24:09T0.12-0.021,0001 Anonymous79 CIBC

CAD$ is down to $US 0.7278.

Without the rights being exercised, the market cap sits at  $US24.5 million...with the rights being fully exercised, the market sits at $US30.5 million.

No speculation as the market heads to some significant material news from Chidliak.
Update Nov 23th

This now trades at a market cap of $US 29 million.

12:46:10T0.14-0.015007 TD Sec2 RBC
12:46:10T0.14-0.015007 TD Sec36 Latimer
12:30:34T0.14-0.011007 TD Sec36 Latimer
12:30:34T0.14-0.011,00039 Merrill Lynch2 RBC
12:30:34T0.14-0.013,5007 TD Sec2 RBC
12:30:34T0.14-0.0123,0002 RBC2 RBC
12:30:34T0.14-0.0110,0002 RBC2 RBC

With the news flow over the next 3 to 6 weeks being of a material nature, there should be significant speculative investors interested. The company has announced a smaller rights offering and that has put pressure on the stock and in turn the market cap.

Domain 5 from ch-7 has more caustic results confirming its significant grade.
That one pocket of kimberlite near surface in 1 quarter of production could generate US$200 million of revenue. 250,000 tonnes @ 4 cpt @ US$200/carat. The last 2 parameters are exactly what we are going to be confirming in the next little while.

That US$200 million could pay for close to half the capital required for the project before CH-6 takes over and generates US$130 million per quarter for 5+ years.  These are quarterly revenue numbers, not yearly.

Update - August 20th

This trade below represents a market cap of $US 33 million.
Taking out working capital and you end up with an enterprise value of about $US 28 million

36 Latimer
7 TD Sec

For a project that is heading toward a $US 500 million NPV in the next 6 months and with a very fast payback period..and this will just be the base case with more resources and $$'s added as the project heads toward being a mine.

Pay less than a quarter now and potentially get a quarter in dividend per year for the next 10 years of the project? --> Dividend Scenario

That alone represents huge opportunity.

Update - August 14.

Current market cap is now $US 36 million. The company has CAD$7.1 million in working capital, leaving an enterprise value of  about $US 31 million.
 Approaching CH-7 bulk sample results and a PEA leads a significant risk/reward opportunity.

The $CAD has decreased recently along with the price gold and the strength of the US Dollar.

Current market capitlization of Peregrine Diamonds is sitting at $US 38 million.

Chidliak is getting closer to a PEA and the NPV calculations can be done with a bit more refinement.

The latest NPV calculation -- NPV # 4 shows a present day NPV of around US$400 million.

That is in today's prices and assumes production in 2020 and is discounted at 7%.

You could add 7% each year as the project progresses toward production.

That gives a NPV of:
2016 - US$425 million
2017 - US$455 million
2018 - US$490 million
2019 - US$525 million

The project is progressing toward a half billion US $$ NPV as you get closer to production.

Not bad for a stock valued at a total US$38 million.

The risk/reward is at a very opportunistic level for not only foreign investors..but especially for American investors.

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