Speaking at a mining conference in South Africa on Wednesday DiamondCorp (LON:DCP) chief Paul Loudon told the attendees that the junior diamond sector has a lot of work to do to overcome a significant credibility gap with bankers and investors.
Loudon was the keynote speaker at the South African Institute of Mining and Metallurgy’s ‘Diamonds: Source to Use’ conference in Johannesburg.
He claims there has been 'way too much over promising and under delivering’ and that the basic mining fundamentals have been ignored.
“Mining is a simple business. It is revenue per tonne less cost per tonne, yet many diamond projects which have attracted exploration and development capital in the past seven years have based revenue and cost assumptions on wishful thinking. Unrealistic projections that could never be delivered on,’ Loudon said.
“There has been too much ‘don’t worry, things will be different this time'; that diamond prices would keep on going up without correcting, that you can go alluvial mining without proper bulk testing, that you can go commercial scale mining with sampling plants, that you can use financial engineering and unrealistically low discount rates to make a marginal project look attractive.
“That you could overcome fundamental flaws in a mining project by throwing money at it.
“Many of the diamond projects that have attracted exploration and development capital in the past seven years should never have done so. As a result, we now have a lot of work to do to overcome a significant credibility gap that the industry has with bankers and investors.”
He says that companies return to mining fundamentals, focus on their core competencies, seek out alternative financing sources with robust projects and above all, rebuild investor confidence.
DiamondCorp, according to Loudon, is following this path.
He says it has built a strong management team with underground development experience, raised funding through a combination of debt, bonds, equity and an off-take agreement while working towards adding shareholder value through the development of a financially robust, long life mine.