Proactive Investors - Run By Investors For Investors
Why invest in DCP?

DiamondCorp builds credibility with high value stones

Interest in DiamondCorp, the company that owns the Lace mine in South Africa, is beginning to rise.
DiamondCorp builds credibility with high value stones
Large stones are the most valuable

Paul Loudon strikes a relatively upbeat tone as he answers his mobile phone in the early afternoon of 26 January, South African time.

The reasons for his positivity aren’t hard to fathom.

He’s spent much of the day acting as host at the Lace diamond mine to a party of investors with significant cash resources at their disposal.

Interest in DiamondCorp (LON:DCP), the company that owns Lace and which he heads up, is beginning to rise.

The visit is one sign of that. Another is the modest jump in the share price that occurred on the same day, when the company released an announcement detailing very positive progress in the production ramp up at Lace.

These days, the market wants production or nothing at all, so in that sense DiamondCorp’s timing looks acute, even if diamond prices are somewhat weaker now than they have been of late.

The salient point is the cash flow that’s starting to come in, and as if to underline that issue the company gave details of three large stones that it has already recovered from Lace, all over 10 carats in size, within the few short weeks that the mine has been operating.

The green light was originally given in mid-December, and full production rates of 30,000 tonnes per month throughput are likely to be reached in July of this year.

In the meantime, ore is coming out of the ground with good stones in it, the plant is being optimised and cash is coming in.

But it’s the discovery of the large stones, with one weighing in at an impressive 22.1 carats, that Loudon seems most pleased about.

“Very quickly within the production ramp up we’re starting to see some of the nice stones that we feel that Lace is going to produce,” he says.

And the thing about stones of exceptional quality is that you can’t really model for them because they are exceptional by their very nature.

But if a mine has a track record of throwing up exceptional stones, as Lace does, then it is possible to intuit that you will get some more.

And since they haven’t been incorporated into the modelling, when they do show up the additional value that they bring slips unhindered right down towards the bottom line.

“You don’t have to recover too many of them to see a significant effect on the dollar per carat ratio,” says Loudon.

Big stones are marketable, as DiamondCorp’s larger peer Petra has demonstrated only too clearly in recent years, and it’s nice to have something to take into town – the 22.1 carat stone has already been sold for US$5,000 per carat.

Still, Loudon cautions that it’s important not to get too caught up on carats alone. What it’s really about, as all seasoned investors know, is the economics of profit.

Beyond the glitz of the big stones in DiamondCorp’s January release lies the real nub of where the company is now likely to add value as the ramp-up continues.

It involves the trial alteration of the size of the screen, which is used to filter crushed material and separate waste from ore.

Counter-intuitively, DiamondCorp has been experimenting with increasing the screen size to 1.25 mm from 1.00 mm in order to allow smaller diamonds and sandy material to escape from processing.

This will, as the DiamondCorp announcement concedes, result in the loss of smaller diamonds into the waste pile, but as the release states, these will be the smallest, and therefore lowest value, stones.

The corresponding savings in terms of water use and the processing of large amounts of sandy material could be significant and are likely to have a real impact on the company’s ability to operate at Lace, where water is a finite resource.

“During tailings re-treatment we discovered that changing the screen size meant we were getting 90% of the diamonds we used to recover and only treating 50% of the tonnes,” explains Loudon. “The same approach has been applied to kimberlite.”

“The key for us is that the biggest constraint on this mine is water. The smallest size fraction is the heaviest consumer of water. When we lifted the screen size to 1.25 mm the water requirement of 45 cubic metres per hour dropped to 29 cubic metres.”

The company has consistently been able to draw 25 cubic metres per hour from the kimberlite ore body itself, so Lace is now approaching steady state as far as water supply is concerned without a major reliance on capturing rainfall.

Even so, a final decision on the screen size has yet to be made. But it’s coming soon, and is likely to be announced in conjunction with a resource update that’ll be out within the next few weeks.

This update, says Loudon, should provide “a greater level of confidence of the quality of the resource at depth.”

Reassurance that the company is effectively able to operate in the somewhat arid conditions in which Lace is located can do no harm either.

But at this stage the mine looks to be working well, and Loudon’s party of site visitors are likely to have left well pleased with what they saw.


Register here to be notified of future DCP Company articles
View full DCP profile

Diamondcorp Plc Timeline

November 16 2016
November 07 2016

Related Articles

May 24 2016
Richland Resources has just put out first quarter results that show its transformation into Australian sapphire miner is now virtually complete
February 02 2016
Interest in DiamondCorp, the company that owns the Lace mine in South Africa, is beginning to rise.
January 05 2017
Gem International is sitting astride a huge diamond concession in Angola, with significant potential both for alluvial and for kimberlite production

© Proactive Investors 2017

Proactive Investor UK Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.