I wanted to follow up on my previous Diamcor Mining (OTCQB:DMIFF) article with a short note detailing one item in particular that I didn't mention. After careful review, I've come to the conclusion that the missing item is fairly substantial -- at least substantial enough to warrant an update. I wanted to point out the dual-OPEX benefit that Diamcor should show (via reporting) at its next quarterly update thanks to 1) being Canadian-listed, and 2) thanks to weak oil pricing. I'll explain.
First, understand that Diamcor is Canadian-listed. That matters. Why? Because Diamcor's revenues are in U.S. dollars. Why does this matter? Well, in the same way that U.S. multinationals are getting noticeably hurt by way of negative FX impact when translating FX to U.S. dollars (referred to as "dollars" from here out) -- see Johnson & Johnson (NYSE:JNJ), McDonald's (NYSE:MCD), Coca-Cola (NYSE:KO), Pepsi (NYSE:PEP), IBM (NYSE:IBM), etc. Diamcor is benefiting from translating its revenues into Canadian dollars (a currently weaker currency). That much is easy enough to understand.
If you have to translate a weaker FX into dollars, your revenues end up being worth less overall dollars (see U.S. multinationals referenced above). If you do the opposite in translation (e.g., Diamcor), your revenues end up being worth more dollars (because they're translated to a weaker currency). Put simply, Diamcor takes its dollars and exchanges them for more Canadian dollars. More equals better.
But, the "Canadian listing" story gets better. Diamcor's expenses aren't in Canadian dollars, which would be a good enough story to tell. No, they're in rand (the currency of South Africa). The rand is even weaker to the dollar than the Canadian dollar is. That's right. The dollar is worth 1.42 Canadian dollars while it's worth 16.49 rand (intraday pricing as of Jan. 25, 2015). This means that Diamcor's positive FX impact is exaggerated even further on a "blended rate."
So, is Diamcor afraid of a strong dollar? Absolutely not. It's welcoming of "King Dollar's" rise. The higher the dollar goes, the cheaper its expense inputs get. Bring on the rate hikes and the non-dollar global easing.
The other net benefit that Diamcor is seeing from the dollar strength reaching unprecedented levels is that global oil pricing is being driven down as a result (while oil is a global commodity, it's traded and priced in U.S. dollars). One of Diamcor's largest input costs is diesel. Precipitously falling oil pricing (partially as a result of the rising dollar strength) has been a tailwind to OPEX deflation at Diamcor.
So, is Diamcor afraid of oil pricing to zero (not really, but we are talking about historically low pricing currently for oil)? No. It's welcoming of the OPEX/Saudi market share war and, again, it's welcoming of the "King Dollar" reign. Lower oil pricing equals lower OPEX. That should equal better margin profiles and a larger bottom line. That's not the worst-case scenario imaginable at Diamcor -- not by a long shot.
I continue to hold a long position in Diamcor Mining.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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