A punchy estimate of cash flow from its Lace kimberlite mine has prompted broker Northland to raise its price target and rating for diamond group DiamondCorp (LON:DCP).
The miner owns 74% of the South Africa-located Lace, which is scheduled to move into production this year.
Initial production is expected to be 68,000 catats (cts) from run of mine material with an additional 22,500cts from tailings processing, said Northland.
Output is expected to ramp up steadily to around 440,000cts per annum by 2017. Life of mine should be at least twenty-five years and may be longer with potential to explore deeper.
Over that period, Northland forecasts the operation will have a life of mine average cash flow of US$$34mln per annum with cumulative positive cash flow of US$$830mln by 2040, making Lace a “globally significant operation”.
DiamondCorp has already said that cash generated from Lace will be returned to shareholders, unless a “highly attractive” opportunity presents itself.
The broker’s price target rises to 15.6p per share, from 11p per share. Currently, DiamondCorp has a market value of £26mln.
Earlier this week, the company signed a landmark four-year wage deal with workers at Lace.
The agreement, with the Association of Mineworkers and Construction Union, allows an annual 8% increase in salaries for most Lace employees.
Analysts said that a four-year wage deal is unusual in South African mining and almost unprecedented in the diamond sector.
Lace is a relatively small employer compared to other mining projects in South Africa with less than 260 workers at present; the project would be able to carry the additional labour costs, Northland said.
Its rating is raised to ‘buy’ from ‘hold’.
Shares rose 4% to 7.9p.