In the media

Junior diamond miner switches to SA

11 April 2008

Source: Miningmx

Author: Brendan Ryan

LONDON AIM-LISTED junior diamond miner DiamondCorp arrived on the JSE last week in what amounts to a double vote of confidence in South Africa's stock exchange.

Not only does DiamondCorp MD Paul Loudon believe he can raise funds and diversify his shareholder base more easily here, but the JSE will now be the "primary regulator" for the company instead of the AIM bourse in London. Diversifying the investor base is a priority, as it currently only has 100 shareholders.

Loudon's view echoes one being increasingly voiced by some junior mining entrepreneurs: that London is a hub for sourcing institutional capital but it's not a great market in terms of support from retail investors.

That's one of the reasons diamond exploration company Pangea Diamond Fields recently gave for raising funds in Canada with a view to a possible secondary listing on the TSX.

Loudon also says AIM's regulations are too loose, and the overall image of the sector has suffered as a result. He says: "A number of mining resources initial public offerings made it on to AIM, which in my opinion wouldn't have stood up to the scrutiny of the JSE, the Australian Stock Exchange or the Toronto Stock Exchange. Those companies subsequently failed to perform."

Despite that, Loudon says DiamondCorp managed to raise £12m in London - of which around £10m came from private investors before the company went public with its listing on AIM in February 2007.

"I don't think we could have done that in South Africa - looking for money as an exploration company. We're now coming to the JSE as a diamond producing company generating cash flows and that should attract greater interest from investors," Loudon said.

DiamondCorp is getting its production from the former Lace diamond mine near Kroonstad, which it bought last year from private mining entrepreneur Chris Potgieter. It's built and commissioned a dense media separation (DMS) plant at the site - which is close to De Beers' recently opened Voorspoed mine - and is now recovering diamonds by retreating dump material from the old operations.

During the commissioning phase and over the following three months DiamondCorp recovered 25 266 carats of diamonds. It tendered 13,744 carats for sale in the three months to end-December, of which 8,574 carats were gem quality on which it realised average revenues of US$64/carat.

That's encouraged Loudon to speed up the second phase development to mine the underground kimberlite deposit through sinking a new decline shaft and refurbishing the existing vertical shaft.

DiamondCorp's current structure is very different to the one Loudon outlined in mid-2007. At that time DiamondCorp said it had negotiated an option to buy Potgieter's Sonop Diamond Mining for 7.5m DiamondCorp shares and $45m in cash. That would have exposed DiamondCorp to alluvial diamond mining along the Middle Orange, where JSE-listed competitors Rockwell Diamonds and BRC DiamondCore are already operating.

But that deal was subject to certain conditions on revenue and operating profit targets Sonop had to meet and trading in DiamondCorp's shares was suspended pending the outcome of the option.

On 25 October 2007, DiamondCorp announced it had reached a "mutual agreement" with Potgieter to terminate the option, as it was clear Sonop wouldn't meet the targets in the near future due to plant commissioning delays.

"It became clear to us that the diamond-bearing gravel deposits along the Orange River are very complex in nature and require a lot more drilling work. That meant it was going to take longer to get to a profitable stage. It became untenable for trading in our shares to remain suspended, so we decided to terminate the option," said Loudon.

Potgieter was supposed to become part of DiamondCorp's management team as part of the deal but that's also fallen away.

Loudon says his strategy is now to concentrate on developing the Lace underground mine while looking for other "suitable growth opportunities".

He adds that such other opportunities could involve going after any other assets that may come out of De Beers, which has already sold off a string of unwanted operations, including the Koffiefontein and Cullinan mines and various dump material resources.

"We'll look at everything that's available - both kimberlite and alluvial. But the projects must be high value with an operating margin we estimate will be greater than 40%."

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