Last Friday, European Diamonds called an EGM to change the company name to Kopane Diamond Developments plc. Kopane they explain - is a Sesotho word meaning "Unity". As the first corporate step towards the total repositioning of the company in the market, this comes as a clear clarion call that EPD's management remain determined to change public ? and market - perception of their company.
It was back in July when this move was first mooted, along with a significant reorganisation of the top echelon of management. Chairman Buddy Doyle reduced himself to the ranks of non-executive director, whilst Roy Spencer resigned as Chief Exec and also became a non-exec, though he did retain responsibility for the Finland operations. Newcomer Tim Read took the top job as Executive Chairman, and a new Chief Operating Officer was introduced in Stephen Lay. Read has years of experience of the mining industry, having served as CEO at Adastra from 1999 to 2006, after some years as co-head of mining investment at Merrill Lynch. Lay's 30 years of experience as a mining engineer and senior executive will stand him in good stead as he takes on the task of progressing the Main Pipe to full feasibility and production.
At the same time, they also announced that two key corporate actions were under active consideration the spinning off of the Finnish assets into a new company to be known as Northern European Diamonds, and a change in the name of the company to more accurately reflect the Lesotho focus. The spin off, it was clear, would take some time, as court approval would be required to reorganise the capital structure of the Finnish holding company, but the good news was that the shares in the new NED would be distributed to EPD shareholders by way of a dividend.
Still more good news included in that 18th July announcement was the upgrading of the Main Pipe resource and the completion of the Preliminary Feasibility Study, under the supervision of ACA Howe, for which shareholders had long been waiting?.
To quote the company's own words on that day: The Company has completed its Main Pipe Pre-Feasibility Study ("PFS") which has generated the following technical and financial elements:
* Kimberlite resources modelled 55.5 million tonnes
* Proposed kimberlite processing rate 3.5 million tonnes per annum
* Initial mine life 16 years
* Provisional cost estimates: Capital US$100 million; Operating US$11 / tonne
* Indicated grade 27 carats / hundred tonnes
* Approximate recoverable carats 15 million carats
* Indicated run of mine value US$70 / carat
* Provisional value of recoverable diamonds US$1.05 billion
It's also worth noting two key comments from Howe, as follows: Howe considers that there may be significant revenue upside above this level because these numbers deliberately excluded several large or bonanza stones, including a 27.7 carat clean D flawless stone recovered from the Main Pipe bulk sampling in December 2006 that realised a price of US$27,000 per carat."
"Howe notes that an independent review and assessment of the macro-diamond size distribution of the Main Pipe based on the recent bulk sampling results by MM Oosterveld, has indicated that an average 200,000 tonnes of kimberlite would yield 4 stones larger than 50 carats and 1 stone larger than 100 carats."
So plenty of potential upside on the $70 per carat level, assessed and vouched for by a specialist organisation whose qualifications to make such an assessement are beyond doubt.
A resource statement issued just two months before, on 17 May, had valued the Main Pipe at a significantly lower level than this, based on available drilling/sampling results at the time. The May assessment prepared by expert diamond consultant Dr Leon Daniels - had covered a mix of indicated and inferred resources down to the 130m level of the pipe, coming up with 30.4 million tonnes at just under 28 cpht, equating to 8.44 million carats and thus valuing the resource at $591 million. This assessment had enabled a successful fund-raising during May and June at 20p, to put another £5.2 million in the bank.
So the July announcement was very good news all around. A new Chairman with some clout, a new COO who was a real mining engineer and not a geologist, a dividend for the shareholders in the fullness of time, and a value for Main Pipe almost 80% higher than just two months earlier.
Which makes it quite inexplicable that the share price, which had been in a gently rising trend from its earlier all time low in November 2006 almost immediately began to fall! Having reached 25p on the day of the announcement, the very next day saw a drop of over a penny, and apart from a couple of stabs at resistance, it has barely stopped since.
Today it stands at just 16.75p, when the company is probably in better shape than it has ever been, with a firm future, strengthened management and a completed PFS that leaves one in absolutely no doubt that the Main Pipe will be Lesotho's next diamond mine. Add to that the fact that the Satellite processing plant is now fully up to speed and churning out diamonds from both Satellite ore and Main samples, and the share price action seems even more strange.
To add to the upside, sales news released just two weeks ago showed that this summer's auctions in Antwerp have realised another $3.4 million in revenue, bringing the total so far to well over $9 million. Overall, run of mine stones are fetching almost $60 per carat average ? showing the influence of the lower grade Main Pipe samples on the total plant output. The price did try to rise when this news hit the market, but to no avail. It seems that investors really have fallen out of love with European Diamonds.
It has to be said that in the past the company has - justifiably - acquired a reputation for being a serial non-deliverer whilst raising funds from the market on a depressingly regular basis on decreasingly favourable terms.
But for the last twelve months, operations at the Liqhobong diamond project in Lesotho have progressed steadily, and the plant which serves the producing 69 cpht Satellite Pipe is now at full output, handling both ore from Satellite and bulk samples from the Main Pipe. Main Pipe is under continuing development to arrive at the final full feasibility study and commence production in 2009.
Last March, with the price at 16.5p mid, we thought that European Diamonds could well be on the cusp, and that the problems of the past were over and done with and the company could begin the task of turnaround. Their work of this last Spring and Summer, the successful PFS and the excellent prospects going forward show that we were right. Sadly, the market doesn't agree with us.
But with luck and a following wind not to mention shareholder unity at the upcoming EGM Kopane Diamond Developments might get a different reception.