Sparkly yield in special case
DiamondCorp, the JSE- and London AIM-listed diamond miner, could be ripe for a takeover. Petra Diamonds, Trans Hex and Sibanye Gold are tipped as possible interested parties.
DiamondCorp’s shares, which are mostly traded in London, have almost halved over the past year to about 6.75p from 11p.
In late April there was selling in London in unusual volumes over several days, which took the price from 8.6p to 6.2p. In SA, the shares have shed about 32% to 147c over a year.
Some of the reasons could be a subdued global market for rough diamonds and a recent series of cash calls by DiamondCorp as unexpected technical problems arose during mine development.
Brendon Hubbard of local fund managers ClucasGray, which holds DiamondCorp in its Future Titans fund, says the April-May selling was a reaction to the unexpected release of a new draft mining charter in SA.
DiamondCorp raised £3.18m before expenses last June through a share placing at 10p and another £2.09m in July through an open offer to all shareholders at 10p. Another share placing was held later in the year, this time at 6p/share, to raise the first tranche of a total of £4m. DiamondCorp also had to reschedule interest and capital repayments on its R220m loan from the Industrial Development Corp, which means the loan will increase to R311m by February next year, when first payment is due. But after the rand’s depreciation, the loan is smaller in pounds than it was when it was granted, Hubbard says.
DiamondCorp’s Lace mine is in the northern Free State, 30 km from Kroonstad and near De Beers’ Voorspoed diamond mine. It was mined until the late 1930s, when De Beers bought it and plugged it as part of its strategy of supply-side control.
It was reopened in 2005, and the new owners have expanded below the original mine footprint.
The underground mine sold its first diamonds in March, realising an average of US$175/carat. It should be in full commercial production by next month, targeting 75,000 carats from kimberlite this year and more than 125,000 carats next year. Management expects it will be cash-flow positive by the third quarter of this year.
In the group’s recently released annual report, chairman Euan Worthington says rough diamond prices weakened 15% last year, mainly in the second half, but the first three Diamond Trading Company sights this year showed strengthening demand. Steady jewellery buying from the US and India offset lower demand from China, Europe and Japan.
With new mines coming on stream, annual global production could be 150m carats by 2021, but is then predicted to fall steeply to about 100m carats by 2030, Worthington said.
“Early indications in 2016 are that there has been some stabilisation in prices for polished stones as inventories are being drawn down. This is feeding through to better prices for rough diamonds and signs that the cycle has bottomed.”
De Beers outgoing CEO Philippe Mellier told the Financial Times in an interview last month that the diamond market appeared to have bottomed, but that the recovery was fragile and there would not be the same bounce back that occurred in 2008.
In a recent note to clients, Jamie Campbell of DiamondCorp’s UK brokers Panmure Gordon said diamond prices were expected to recover in the fourth quarter of this year, driven by reduced supply and improved retail demand.