True North Gems Brings On-Board Major Gemstone Market Player
Edison | Feb 02, 2016 07:37AM ET
Major industry player signs three-year of
True North Gems Inc. (TO:TGX)’s binding agreement with major Asian gemstone polisher Chinastone, details a three-year commitment for the latter to purchase US$7m (C$9.9m) of Aappaluttoq stones per year for an initial three-year term. Stones will be sold at market prices, paid for solely in cash. This is a major step forward for the company, and brings on-board a major player in the gemstone market. True North intends to develop this partnership to engage further buyers for its highly marketable and conflict-free pink sapphires and rubies. Consistency of supply is a unique selling point for the company and is underpinned by Aappaluttoq’s mine plan being based on an NI43-101 compliant resource.
Deal satisfies 41% of 2016 break-even revenue
Production costs to extract and process gemstones are inherently low at Aappaluttoq due to its gemstones cropping-out at surface and the relatively simple nature of mining and processing gemstone material. Therefore, while this initial C$9.9m per year deal constitutes 20% of our FY16 revenue forecast, it would also cover approximately 41% of True North’s total production and corporate costs for 2016. One further deal of this magnitude would practically eliminate a need for additional funding in 2016. Note that if production and corporate G&A costs are maintained as per our forecasts and the C$48.8m revenue target is achieved, True North’s EBITDA margin would be 77%. If only C$24m of revenue is achieved (the amount required for it to break even for the year), EBITDA margin reduces to 42%.
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