Tim Read, chairman of Kopane Diamond Developments, highlighted a number of positive developments at the company’s 75% owned Liqhobong diamond property in Lesotho in his Chairman’s letter which prefaced the annual accounts.
Numbers for the year ended 30 June 2008 showed – in spite of big increases in manpower and diesel fuel costs - a significantly reduced loss of £4.7 million, as opposed to £7.2 million in the previous year. The reduction is accounted for by higher diamond sales, the extension of Satellite plant life which has reduced annual depreciation, and a small gain relating to the Mantle Diamonds JV over the Finnish interests. Mining costs per tonne have been contained at a similar level to 2007 in sterling terms, averaging £11 per tonne and the Satellite plant is now working at or above its nameplate capacity. A 10% improvement in throughput is expected in early 2009 following modifications to the flow sheet plus some additional generating capacity.
Better operating efficiences saw 67% more ore treated during 2008, leading to diamond recovery of 152,013 carats – up from 111,372 carats in 2007 – whilst sales of 148,824 carats generated US$6.9 million revenue. Stone value per carat was lower than in 2007, when four high value stones realised US$1.46 million, but almost double the number of carats were sold, generating a 28% increase in revenue. After the reporting period, a 13.32 carat vivid yellow was recovered from the K5 section of Main Pipe, and sold for US$466,679. Read did however warn that in the current climate, rough diamond prices, after an increase of some 20% early in 2008, have now fallen back in the order of 25-30%. Whilst confident about long-term demand, he could not forecast how long the present market weakness would last.
Against this background, Kopane are currently seeking a new sales agent for their stones, as BHP Billiton will cease to act for them in Antwerp at the end of 2008. As an increasing number of stones will be marketed in the run-up to production at the Main Pipe, and Liqhobong output includes well-regarded premium diamonds, Kopane are reviewing the best way forward to maximise revenue.
Most of Read’s letter focused on the advancement of the Main Pipe at Liqhobong, which is now the company’s key project, and where substantial progress has been made on the Definitive Feasibility Study, including an interim resource statement which increased project value by some 200%. Following bulk sampling and narrow diameter drilling, Main Pipe now contains a resource totalling almost 30 million carats at a run-of-mine value of US$86 cpht, giving an indicative value of US$2.5 billion. The large diameter RC drilling campaign has taken longer than anticipated and its delayed results combined with the increased size of the resource beyond original expectations mean the DFS is not now likely to be complete until mid-2009.
An essential part of the development is the availability of power. Feasibility studies and an environmental impact study have been completed, and a capital estimate of US$12-18 million is forecast, to be shared between Liqhobong and the Lesotho Diamond Company which operates the Kao mine development in the next valley. As it would be more cost-effective to have access to reticulated power as soon as possible, Kopane are exploring ways in which this can be funded in advance of obtaining project finance. Discussions are ongoing with the Lesotho Electricity Company, the GoL and potential lenders. As the GoL owns 25% of the project and holds it in high regard, Kopane are optimistic that external funding will be available to provide power to the site by 2010.
In the interim, the company is presently precluded from equity raising, as the share price is below the nominal share value of 5p. Shareholders will therefore be asked to approve at the AGM a change in the capital structure, involving each ordinary share being divided into one ordinary share of 1p face value, and one deferred share of 4p value. Authorisation for fundraising to the extent of 30% of the issued shares will also be requested on a non pre-emptive basis. The company feel it is important to retain financial flexibility in order to preserve the company and its principal assets during a difficult period.
Read remains confident of the company’s long term potential as he concluded his review: “The great prospectivity of Kopane's assets should no longer be in any doubt.”