Dominion Diamond (TSE:DDC) had its price target hiked up by analysts at Dundee Capital Markets after the company released positive prefeasibility study results from the Jay pipe at its Ekati mine, which were ahead of the brokerage firm's estimates.
"We estimate Jay can be funded with existing cash and cash flow and its construction should extend Ekati's mine life from 2020 to beyond 2030," said analyst Matthew O'Keefe in a report released to investors late Tuesday.
The prefeasibility study showed an after-tax net present value of $610 million at a 7 percent discount rate, well ahead of Dundee's previous estimate of $355 million. After tax IRR was 16 percent.
Initial capex was estimated at $690 million, also better than Dundee's view of $800 million.
Total operating costs were seen at $75 per tonne, well below Dundee's conservative $112 per tonne estimate, O'Keefe said. This was partially offset, however, by slightly lower grades and base diamond values, he added.
The Jay deposit at the Ekati mine in the Northwest Territories is 65.3 percent owned by Dominion Diamond.
Production at Jay is scheduled to come online in 2020, just as previously planned operations at Ekati were expected to close. The deposit's 11-year mine life should extend Ekati's production past 2030, Dundee said.
The prefeasibility is based on permits being received for the deposit in 2016, and construction beginning in the second half of that year.
"We expect Dominion to proceed with Jay and estimate that it has sufficient capital to internally fund its growth plans, offering a relatively clear path to Jay and extending the mine life of Ekati," wrote O'Keefe.
"Nearer term, the high grade Misery pipe ramps up pushing free cash flow yield towards ~15% in C2016. Positive momentum should continue with the release of a technical report for A-21 and a dividend announcement in April."
Dundee's revised C$25.00 per share target price, up from C$23.00 previously, reflects an updated model, including a higher net asset value per share, decreased capex and lower cost estimates.
The study outlined a throughput rate of 45.6 million tonnes, recovering 84.6 million carats at an average grade of 190 cpht over the life of the mine.
Dominion also operates the Diavik mine in the Northwest Territories. Shares rose 2.1 percent to C$20.30 on Wednesday, extending gains over the past 12 months to over 26 percent.