Ocean Equities this morning initiated coverage of Diamondcorp (LON:DCP) with an upbeat assessment of its prospects.
It says the company, which owns a 74 per cent stake in South Africa’s historic Lace Mine, is worth 24 pence a share.
Currently the stock is trading at 9.44 pence after a placing at 8.5p to raise £2.95 million to fund its revised plans for bulk sampling at Lace.
It is one of two projects in the DiamondCorp portfolio. The second is the Jwaneng South mining licence in Botswana.
The Diamondcorp pitch is next door to Debswana’s Jwaneng mine, one of the richest diamond mines in the world, and Ocean believes Jwaneng could be a “company maker”.
However Lace is integral to the near-term prospects of the group, with stones recovered from the bulk sampling of the mine set to go up for sale in the second quarter of next year.
Many of the diamonds already produced from the tailings at Lace have well defined, sharp crystal structures making them what’s called sawable.
This simply means they can be turned into two small stones rather than one stone plus waste, Ocean said in a not to clients.
Lace is one of South Africa’s oldest mines, though it has a chequered history. The plan is to have it back up and running by mid-2012.
Its economics mean it will break-even excavating just 12.5 carats per hundred tonnes based on forecast production levels.
However, the company’s own data suggests the group will be able to achieve something in the order of 24-30 carats per hundred tonnes, making Lace a hugely cash generative venture.
“We have calculated a net asset valuation for DiamondCorp of 31p which includes the carrying value of Jwaneng South, the Lace Satellite pipe and tailing resource value, and the minority shareholders share of Lace’s capital expenditure,” said analyst Christopher Welch in a 16-page note mailed out today.
“However, we believe 24p to be the more appropriate price target for DiamondCorp as only the Main Pipe will be mined in the near term.”