Diamond producer DiamondCorp PLC (LON:DCP) said demand and prices for rough and polished stones have been improving with signs that the cycle has bottomed.
The company, which owns 74% of the Lace mine in South Africa, joined the ranks of diamond producers this year and sold its first consignment of diamonds in April, so the upturn in the diamond market is fortuitous.
Its results for 2015, however, cover a period when the company was not earning revenue, so it is no surprise that the company made a loss before tax, of £2.41mln, though this was an improvement on 2014's loss of £3.25mln.
At the end of 2015, total assets had risen to £35mln from £32.41mln at the end of 2014, while a cash on hand stood at £1.78mln, down from £2.60mln a year earlier. The company received a cash infusion of £2.06mln in January from the second tranche of a placing.
A major advance during 2015 was the final installation and commissioning of the underground conveyor at Lace, which is now bringing kimberlite and development waste to the surface without the need for excessively long haul distances for the company's heavy dump trucks.
The company also completed the dams and water recovery systems on site, which has alleviated concerns about water availability for processing the kimberlite ore. This is important after low annual rainfall in recent years, noted chairman Euan Worthington.
“Early indications in 2016 are that there has been some stabilisation in prices for polished stones as inventories are being drawn down. This is feeding through to better prices for rough diamonds and signs that the cycle has bottomed,” Worthington suggested.
“ As we ramp up to full production, management is focused on keeping all costs minimised and the budget within existing cash resources, whilst cognisant of remaining both on schedule and operating within very high safety levels,” Worthington added.
Given the results covered the pre-revenue era of DiamondCorp, Shore Capital said the numbers were “essentially academic”, and of more significance were the results from the diamond sale in Antwerp last month.
“According to DiamondCorp, all Lace diamonds that have been beneficiated have improved in colour, which we find encouraging as this implies potential for significant additional value. As of April 2016, DiamondCorp was on-schedule to produce more than 75kct [thousands of carats] from kimberlite in 2016, and >125kct in 2017,” Shore said.
Panmure Gordon said the financial report was in line with expectations. “The main message is that management remains confident that progress towards commercialisation in July remains on track and the funding position, albeit tight, looks to be sufficient ahead of the planned June auction and the ramp-up to 30,000tpm [tonnes per month] from July,” Panmure's Kieron Hodgson.
“The cash position at year end was £1.78mln with an additional £2.06mln gross received in Jan 2016 from the second tranche of the December 15 placement. US$1.09mln was generated from the first tender at the end of March and circa US$1mln was spent on new equipment in mid-April,” Hodgson recounted.
“Taking the numbers into account we recently highlighted the limited liquidity under our modelling; however, management confirms that whilst the position will be tight, sufficient liquidity is expected to be available to see the company into commercialisation with the ramp-up in July. Between now and the next tender (expected in June) is the tightest time in our modelling and this ambiguity is being reflected in the share price in our view,” Hodgson said.
Panmure Gordon rates the shares a 'buy' and has a target price of 14.5p. The shares rose 0.7% to 6.92p on the results.