European Diamonds called an EGM in November to change the company's name to "Kopane Diamond Developments plc". "Kopane" they explained, is a Sesotho word meaning "Unity". As a step towards the total repositioning of the company in the market, the name change to "Kopane" comes as a clarion call that the company's management is determined to change the market's perception of the company. The market doesn't seem to have noticed that the company has been selling diamonds since March 2006, and that between May and September 2007, four packets of diamonds from run of the mill production at the company's Satellite Pipe in Lesotho, (with some diamonds blended in from its nearby Main Pipe development project) realised US$3.4 million.
Back in July 2007, the company reorganised its top management: Chairman, Buddy Doyle, stepped down and became a non-executive director, Roy Spencer stepped down as CEO and also became a non-executive director, and was retained as an advisor on the company's exploration activities in Lesotho and Finland. Newcomer Tim Read took the top job as Executive Chairman and Stephen Lay became Chief Operating Officer. Tim Read has years of experience in the mining industry, having served as CEO at Adastra from 1999 to 2006, he has also been Managing Director of investment banking at Merrill Lynch in London. Stephen Lay's 30 years of experience as a mining engineer and senior executive will stand him in good stead as he takes on the task of progressing Kopane's Main Pipe project to full feasibility and on to production. The company also announced at this time that it was actively considering spinning off its Finnish assets, and changing its name to more accurately reflect the focus on Lesotho.
Also in July 2007, the company announced the upgrading of the Main Pipe project resource figure and something that shareholders had long awaited ? the completion of the Preliminary Feasibility Study for the Main Pipe project, under the supervision of ACA Howe, which highlighted the following technical and financial elements:
Kimberlite resources modelled: 55.5 million tonnes
Proposed kimberlite processing rate: 3.5 million tonnes per annum
Initial mine life: 16 years
Provisional cost estimates: Capital US$100 million; Operating US$11 / tonne
Indicated grade: 27 carats / hundred tonnes
Approximate recoverable carats: 15 million carats
Indicated run of mine value: US$70 / carat
Provisional value of recoverable diamonds: US$1.05 billion
ACA Howe also pointed out that there may be significant revenue upside above this level because the numbers used for the Preliminary Feasibility Study deliberately excluded several large diamonds, such as a 27.7 carat clean D flawless stone recovered from the Main Pipe bulk sampling in December 2006 that realised US$27,000 per carat. ACA Howe also provided a estimate of macro-diamond size distribution of the Main Pipe ? more about that later.
So plenty of potential upside on the $70 per carat level, assessed and vouched for by a specialist organisation whose qualifications to make such an assessment are beyond doubt. A resource statement issued just two months before, on 17 May, had valued the Main Pipe at a significantly lower level than this, based on drilling/sampling results available at the time. The May assessment - prepared by expert diamond consultant Dr Leon Daniels - had covered a mix of indicated and inferred resources down to the 130m level of the pipe, coming up with 30.4 million tonnes at just under 28 carats per hundred tonnes, equating to 8.44 million carats and thus valuing the resource at $591 million. This assessment had enabled the company to conduct a successful fund-raising during May and June at 20p, to put another £5.2 million in the bank.
So the July announcement was very good news all-round. An executive chairman with some clout, a chief operating officer who is a mining engineer, the spinning off of the company's Finnish assets which might create a dividend for shareholders, and the value for Main Pipe almost 80% higher than just two months earlier!
For the last twelve months, operations at the Liqhobong diamond project in Lesotho have progressed steadily, and the plant which serves the producing Satellite Pipe, with an average grade of 69 carats per hundred tonnes, is now at full output, handling both ore from Satellite and bulk samples of ore from the Main Pipe. Meanwhile, the Main Pipe is under continuing development, aiming for the final full feasibility study and production start-up in 2009.
Recently, Kopane announced that it had signed a joint venture agreement with Mantle Diamonds for Kopane's Finnish assets. The agreement will see Mantle earn up to 70% from 28 mineral claims including Lahtojoki, Kuusumo and Lentiira which were placed in the JV by Kopane. Mantle will be required to spend US$5 million on exploration and evaluation, including a bankable feasibility study on the Lahtojoki property, which is the most advanced project in the portfolio. Mantle will also issue 10 million shares to Kopane in tranches as agreed milestones are reached.
"The creation of this Finnish joint venture is the final and fundamentally important component in the restructuring of Kopane. It allows us to concentrate Kopane's managerial, technical and financial resources on the development of our assets in Lesotho, whilst continuing to benefit from the exploitation of the Finnish assets. It furthermore provides a look-through value on our Finnish assets of some £3.6 million." said Kopane's new chairman, Tim Read.
Good news came from Lesotho in the same update, confirming that bulk sampling and other testwork was continuing on Main Pipe, with the expectation that a full bankable feasibility study will be complete by the end of 2008. Meanwhile, with production underway at Satellite Pipe in the second half of 2007, the company sold 77,575 carats of diamonds for US$49.09 per carat, bringing in US$3.81 million. Sales since March 2006 total 180,268 carats, which have yielded an average price of US$57.54 per carat, and revenues of US$10.37 million. As of December 31, 2007, Kopane had a further 22,392 carats being held ready for the next diamond sale in Antwerp.
In a recent note, Ambrian Capital rates Kopane as a "buy" with a current target price of 38p. Ambrian opines that Main Pipe represents most of the upside for Kopane and that its run of the mill grade bests that of Letseng, a similar kimberlite pipe also in Lesotho, which operates profitably. Letseng is unprofitable on the basis of recovering only run of the mill sized stones, and is dependant for profitability on recovering large stones ? e.g. greater than 10 carats. However, Main Pipe is likely to be profitable on the basis of its run of the mill stones, and "hugely profitable" on recovering large stones. The incidence of larger stones is difficult to predict; however, an ACA Howe study of the macro-diamond distribution at Main Pipe estimated that on average 200,000 tonnes of kimberlite would yield four stones in excess of 50 carats and one stone in excess of 100 carats. In 2006, a bulk sample of less just under half a million tonnes of kimberlite at Main Pipe has yielded four large fragments which sold for US$18,333 per carat, whereas the run of the mill stones from the same batch yielded US$70 per carat. So bonanza stones will be important, and Ambrian considers Main Pipe to be a "bonanza-stone kimberlite".