‘A little gem’ is how BlueRock Diamonds PLC (LON:BRD) chief executive Adam Waugh describes the company’s Kareevlei diamond mine at Kimberley, South Africa.
Any pun was unintentional but Waugh believes that while small, as diamond mines go, Kareevlei may indeed be perfectly formed.
Latest results for a second tender of diamonds from the mine illustrate why he is so upbeat.
Sales were its highest to date, earning the group R3.25mln or US$226,400 from an auction of the record amount of almost 610 carats (cpth) worth of diamonds.
Importantly, the value of the carats sold rose to US$371.25 compared to an average US$336.65 previously.
That price puts it comfortably into the world’s top ten kimberlite mines on a dollar per carat basis.
The auction also confirmed the high quality of diamonds mined at Kareevlei, he added, especially as the average price was achieved without any exceptionally large diamonds.
“The largest sold was 5.5 carats.”
Quality is king
Quality is king in the industry he explains, with diamonds sold almost on a case-by-case basis.
Diamonds are mined from kimberlite pipes formed aeons ago in the aftermath of huge volcanic eruptions.
Of these, only around 5% contain grades or concentrations of diamonds commercial enough to warrant being mined.
Kareevlei has five of these pipes on its 3,000 hectare licence, though currently all production is coming from one, K2, and even here from right at the top of the pipe.
Waugh explains: “You have to find a kimberlite, establish if it holds diamonds and then mine it.”
“We have found the kimberlite, carried out the tests to see if it is a reasonable grade and now we are in the mining phase.”
So far that has involved blasting and stripping away a hard, 10m deep calcrete top surface.
Now it is down into the 10m-20m level, where it found the diamonds sold in the latest auction.
But it is when the mining operation gets through this and into the next 10m that things start to get really interesting, says Waugh.
“The diamonds won’t be bigger, but the second layer has been diluted to some extent by the calcrete, so this will be the first layer of pure kimberlite.
“Characteristics won’t change but the grade or number of carats per 100 tonnes that we mine should improve.”
And Waugh is very aware that an increase in the number of carats recovered will have a disproportionate effect on the bottom line.
More carats equals more profit
“Our mining costs won’t change. So if we can get the caratage up from 600 to 1,000 it will make a huge difference.”
The impact will likely be significant on the market cap as well, given that the company is valued at just £2.6mln at 1.72p.
Waugh reckons BlueRock can mine down to 70m in an open pit at K2 before the costs start to get prohibitive.
Then there is the potential of an underground operation, though Waugh is not sure the grades seen so far would warrant that.
Development of the other four pipes at Kareevlei is also underway.
Exploration has started at the as yet undrilled K5, though it is K1 that is likely to come on stream next year to give some flexibility in production.
Of course, the game would change again if BlueRock pulled out a monster diamond, but while a nice bonus, Waugh is not setting the company up for that eventuality.
Kareevlei‘s largest diamond so far has been 11.7 cpth, though analysis has suggested the potential for much bigger stones.
“If we pull out something exciting great but that’s not the economics” he says.
“The key is to get Kareevlei cash flow positive at US$300 per carat, after that we have a low risk asset with 17 years left.”
While Kareevlei might be the focus for now, Waugh does have wider ambitions.
BlueRock has one other asset, Jubilee, where some small scale bulk sampling has taken place but the plans are broader than just this.
Have quote, will use it
“We have a quote and we intend to use it," he says.
In particular, that means targeting the mid-sized deposits that are too small for the giants, but too large for the alluvial mining community to handle.
Waugh, a former stockbroker, has already moved to Kimberley to be more hands-on.
“There is a great opportunity in smaller and mid-sized pipes,” especially as these often have good data as at some time one of the larger companies would have assessed the potential.
Indeed, most would probably have been part of the De Beers stable at one time, “but we can look, assess and take on the opportunity.”