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Steal This Stock

Bob Moriarty
Oct 28, 2013

I wrote about the merits of owning Arianne Phosphate (DAN-V) about six weeks ago. When I wrote my piece, the stock was absurdly cheap, selling for about 10% of the then accurate $1 billion Net Present Value. That $1 billion dollar NPV was put out in 2012 and valued each of the 92 million shares on a fully diluted basis at about $11 a share. That’s right. Stock at $1.25, NPV at $11 a share. That’s cheap.

It got a lot more absurd on Thursday afternoon after the markets closed. The company released their Bankable Feasibility Study showing a new NPV of $1.91 billion.

Living in a world of unlimited government debt from every direction, investors have lost all ability to think about big numbers. Billions, trillions, quadrillions, mega gazillions, what do they all mean? Let me put the numbers from DAN into context.

Arianne has just over 79 million shares outstanding and another 13 million options and warrants for a fully diluted basis of around 92 million shares. With a NPV in the BFS of $1.91 billion, each share has an NPV of $20.76. With that announcement on Thursday and the shares selling for $1.25, you would expect an explosion on Friday in the share price. Actually we had a fizzle. The shares went up from $1.25 by $.19 to $1.44. You have to wonder if investors have lost their minds or simply don’t understand the numbers.

I think they don’t understand the numbers. So let me go over them. DAN released a BFS on Thursday on the Lac à Paul project. The project has an M&I resource of 590 million tonnes. It shows a 26-year mine life producing 3 million tonnes of phosphate concentrate yearly. It has a $94 FOB cost per tonne with revenue of $213 per tonne for an operating margin of 56%. The total capex to build the mine and infrastructure is about $1.2 billion and it will carry an IRR of just under 21%.

The new BFS does not include the value of the additional 164 million tonnes of ore in the Manouane Zone that was counted in the old Pre-Feasibility study. That would add an additional 8 years of mine life and additional NPV of $500 million.

Phosphate concentrate is an industrial material. The demand is fairly consistent and predictable. Arianne has a higher grade, more-desirable form of phosphate that adds a premium to the price. Right now the largest supplier (and swing producer) of phosphate is Morocco. Those deposits are in the Western Sahara and there are political issues with phosphate from there.

The BFS is a giant step forward for Arianne. It removes most of the financial uncertainty that a major phosphate company would want removed before taking a run at DAN. The numbers are beyond incredible. You will see projects with longer lifetime or lower capex or a higher IRR but never in your life will you see a company with a resource of this quality in a politically safe country selling for 6% of their NPV.

Arianne will be taken over before very long. My research shows that deals in this area take place in the range of .35 to .5 of NPV. If the company got into a bidding war, obviously the price would be higher. So I am predicting an offer of between $6.50 and $10 a share within the year. Remember, you aren’t buying this stock, you are stealing it.

Arianne is an advertiser and I am biased. Do your own due diligence.

DAN-V $1.44 (Oct 25, 2013)
DRRSF OTCQX 79.7 million shares
Arianne Phosphate website


Bob Moriarty
President: 321gold

321gold Ltd

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