Since debt doesn't change much, but cash on hand and operating costs, etc. do change, I will splkit up the snapshots as time permits based on knowledge at hand. This is a snapshot/analysis completed in early March based mostly on information from 2018 and before.
---------------------------------------------------------------------------------------------------------------
Operating cost for Renard:
Guidance:
"For FY2019, cash operating costs are estimated at $120 to $130 million, representing $47 to $54 per tonne processed or $57 to $72 per carat recovered. FY2019 capital expenditures are estimated at $70 to $80 million, principally related to the development of the underground mine at Renard."
Capital costs of CAD$70 million...that will continue every year as the ramp develops to the bottom of the current reserve base. Maybe less in future years? Assume CAD$70 million 2019 and $35 million after per year.
---------------------------------------------------------------------------------------------------------------
Cash and Receivables:
Sept 2018 - ~CAD$10 million
October 2018 PP - ~CAD$20 million
October 2018 Streaming upfront payment - ~US$45 million
Now? -- CAD$90 million
---------------------------------------------------------------------------------------------------------------
Royalties? Taxes?
Let's just ignore those for now.
When will the money run out again?
Here is a quick analysis of cash flow that ignores taxes and royalties for now.
Take away?
If they need to pay significant capital (blue line) as the underground continues to develop, there is a big problem. If the capital for 2019 (grey line) develops the lower part of the Underground mine at significant depth to the LOM Reserve level, then there is a possibility to swing this up and get some momentum.
Assuming (not reality) no capital post 2019 and no taxes or royalties are paid (not reality), the NPV at 5% discount equates to CAD$28.4 million.
The current market cap sits at CAD$175 million, which would equate to a premium of 6X.
If they can squeeze a break even operation for the next 10 to 12 years...then the real winner from a retail point of view would be the unsecured debentures in the next two years. Trading at a 30% discount and paying over 6% on top of that over the next 2 years until they come due.
The company would probably have to do another debentures to play out the breakeven scenario.
---------------------------------------------------------------------------------------------------------------
Commentary:
When I started writing this blog, I truly thought the company itself was basically hopeless. Bankruptcy/receivership was the only end goal and the creditors would take over the operation and run with it. Now there is a faint amount of hope and it lies between having less breakage of diamonds (that they have worked on diligently) and reducing sustaining capital.
The question then is....how far deep into the mine does the CAD$70 million capital costs go? Is it a one time event and 2020 will have a lot less sustaining capital?
The companies stock price is still over valued by 6X based on this analysis. Bring in royalties and taxes and that probably goes to 10X or 12X. Another equity raise might be a material event to push this company over the break even over the lifetime.
The best time to do a private placement or bought deal is when your company has expensive (premium priced) shares...and that is exactly where SWY sits. They should actively pursue this path to alleviate the significant pressure on the corporation.
-------------------------------------------------------------------------------------------------------------------
