“We’ve got a mine, we’ve got grade, we’ve got the carat value,” says Paul Loudon of Diamondcorp Plc (LON:DCP). “And we’ve got US$1.5bn of diamonds in the ground to be mined in the next few years.”
In a nutshell that’s the base case for Diamondcorp’s Lace mine, which commenced production earlier this year.
Lace has experienced its fair share of teething troubles, to the point where the market marked the shares down quite heavily on Tuesday after Diamondcorp said it had lost several days of production due to water issues.
But Loudon is not to be set off course by a couple of setbacks.
“If opening underground mines was easy everyone would be doing it,” he says. “If this had been an easy project we would never have been able to get our hands on it in the first place.”
And as it stands, although the production has been patchy, the quality of the stones has been highly encouraging.
“To date,” says Loudon, “the amount of kimberlite that’s been mined and processed in ramp-up is really only equivalent to one month’s worth of production of ore from the first block. But already we’ve had a 22 carat stone and lots of plus-eight carat stones. It’s only a matter of time before we pull in a 50 carat stone or a 90 carat stone. It’s a numbers game because we know they’re there.”
Indeed, if historical mining at Lace is anything to go by, there could be even larger stones in the ground there.
A tantalising prospect, and one which in the years to come should entice plenty of punters at the company’s tenders in Antwerp, which are now getting underway. The next will be held in a couple of days’ time, and looks set to be well attended. The initial parcel will contain around 5,700 carats, while future tenders are likely to run at closer to 9,000 once the inventory builds up.
The income generated by those tenders will be welcome indeed, although due to the production shortfall it may now need to be supplemented by a short-term facility of some kind.
What form such a facility will take hasn’t yet been spelled out, and indeed was the subject of some speculation amongst London’s analyst community on Tuesday.
But Diamondcorp did raise £2m in June at 6p per share, so there is some cash to fall back on. And although the market did mark down Diamondcorp’s shares on news of the further lost production days, the current price of 5.38p is still within shouting distance of the price at which the most recent funding was done.
What’s more the mine itself still has plenty to offer. “It stands as one of the few new long-life diamond projects coming into production,” says Loudon.
Its large inventory still has huge attraction. And if it did yield up a stone of significant size, of 50 carats or upwards, then all talk of working capital facilities would quickly dissipate.