The federal government of Canada contributes to a lot of infrastructure related projects.
Is there room for some of that at Chidliak as the CEO of Peregrine Diamonds indicated as a possibility in the recent PEA (preliminary economic assessment) conference call?
First off, existing commitments have already made there way to the economics of the current PEA.
This commitment is the construction and operation of a new deep water port in Iqaluit (operational 2020) and a beefed up sea lift as well. Both of these would be utilized for the construction and operation of a Chidliak mine.
An all weather road is the current plan for access to Chidliak from Iqaluit. This is about a 160 km road and the cost of it is approximately CAD$95 million to construct. There will probably be a couple of bridges involved and a few culverts...but most of the terrain will be shaping of the existing tundra.
Can and should the federal government look to contribute and fund part of this road?
To answer that question, one must look at the payback from the government's perspective.
Where exactly does the government receive revenue from Chidliak?
They receive taxes directly off the profits from Chidliak. Direct from the ownership of the mine.
Where else do they receive revenue?
A lot of money would be spent over the life of the mine. The employees who work at the mine pay a nice steep personal income tax of between 25 to 40%. Employees who work at companies that supply equipment and services to the mine also pay personal income tax. Those suppliers and other companies also pay taxes on profits to the government as well.
There is an obvious calculation that can be done and with the PEA in hand, this is just a number crunching exercise. Previous to the PEA, there were too many unknowns.
The road can be used by other entities besides the mine....and after the mine closes in 1 or 2 or 3 decades, the road can still be used for other things.
The equation of $1 spent by the government will generate $X in return is absolutely a reality here.
Risk? The project has to be shown to make a profit. If it is marginal and turns out to be failure, not only does the government not get payback..but they may end up with a bankrupt company to deal with. That is why robust studies do need to be done.
A bankable feasibility study is a study that is well detailed and refined and solid that a bank could step up and finance the entire project at a negotiated rate of x+prime %.
Government's do not need that level of detail and specifically if contribution to the road...kickstarts the project and makes the economics more lucarative, why not look at a government funding earlier as opposed to later.
There are also a lot of government jobs in Iqaluit and a road to Chidliak and a long mine operation would overall benefit Iqaluit (reduce costs for locals) and probably save money to the government from that perspective.
Yellowknife has enjoyed the last 2 decades by being a conduit to the Lac De Gras mines and all the benefits they create. Iqaluit would benefit tremendously just as Yellowknife has.
Obtaining funding for mine development and also get government infrastructure funding are probably not mutually exclusive. The government would want to see some firm financial commitment to the project. On the flip-side, it may be easier to get that firm financial commitment knowing that government funding was on its way.
The PEA, with its IRR and NPV clearly show that government funding is not needed to make this project very profitable...however showing economics and building an actual mine are two different things.