www.diamondcorp.plc.uk
DiamondCorp plc is an emerging diamond producer focused on maximising shareholder value through the development of high margin diamond production assets. The company is incorporated in the UK and the highly prospective diamondiferous regions of South Africa and Botswana are its chosen areas of operation.
DiamondCorp's initial sampling results from Lace mine 'very positive news', says Fairfax
Fairfax retained its bullish view on DiamondCorp’s (LON:DCP) operations in South Africa after the diamond producer's initial kimberlite sample from its Lace mine returned better than expected grades and values.
According to the research report from the broker, this means that development costs of the Lace mine could be significantly lower than anticipated, reducing DiamondCorp’s funding requirements.
Fairfax analysts led by John Meyer upheld their valuation of the company at 23 pence, which is more than double the company’s current share price of 11 pence.
Meyer plans to revisit the valuation upon confirmation of the grade and value of the entire sample.
A little more than a week ago, DiamondCorp told investors that it had retrieved and processed 5,514 tonnes of kimberlite through the bulk sampling programme at Lace, representing 20 percent of the total 30,000 tonne bulk test. The samples produced higher than forecast grades and values.
From these samples the first 561 carats have been valued, by the SA Diamond Exchange, at an average price of US$205 per carat.
Notably this valuation comes in at a 71 percent premium to DiamonCorp’s base case of US$120 per carat, and 28 percent higher than the upper case valuation of US$160 per carat. Meyer’s valuation of 23 pence also assumed a diamond price of US$120 per carat.
The bulk of the value in the parcel lies in gem stones of between 1 and 4 carats, and more than 80 percent of the diamonds recovered were gem quality. DiamondCorp said this was an exceptionally high proportion for run-of-mine kimberlite.
Meyer called the results “very positive news” for DiamondCorp as they mean that grades and values are now expected to be significantly higher than forecast through much of the rest of the 30,000 tonne sample.
Meyer added that revenues from the sale of recovered stones should have a “marked impact” on the project economics and raise its value.
While acknowledging that DiamondCorp needs to secure more funds to cover the costs of development of the full scale mining plan, Meyer said higher than projected grades and values should significantly reduce the company's financing requirements.
“On our numbers if the average bulk sample grade increase by 11 percent then the value per tonne mined could match the cost of development. This means that the company could, in theory, pay the capital cost of its ‘full mine’ development through the sale of stones mined in this process,” said Meyer.
Fairfax expects DiamondCorp to tap the markets for more cash following the completion and valuation of stones from the bulk sample this year.
The funding options available to the company include offtake agreements, bank facilities and a further equity fundraising following a £3.48 million placing conducted in June.
