The Faraj List of Exploding Stocks Part 3.04 (FAR3)
Sweet Cherry Pie - Mon, 27 Dec 04 :
Institutional sales - Morning summary.
Thursday, 23 December 2004
African Diamonds 44p
Update £26.7m Mining AFD
IN TODAY’S SUMMARY RESEARCH PUBLISHED TODAY
African Diamonds (AFD)
African Diamonds has released an update regarding its diamond exploration work in Botswana. The specific news is that the diamonds recovered from the 100 tonne bulk sample taken from the AK6 kimberlite pipe have been valued at an average of US$138 per carat. In addition, the drilling programme has indicated that the pipe is at least 10 hectares in area. This work is being done in joint venture with De Beers, which is managing the programme on the ground.
The average grade of the sampled material is 25 carats per hundred tonnes, which indicates that the average gross value of the kimberlite is US$34.50 per tonne. Cash operating costs would be of the order of US$10 to 15 per tonne, which suggests a profit of at least US$20/t. Assuming that the average area of the pipe is 10 Ha, this suggests that each vertical metre of the deposit may host 250,000 tonnes of kimberlite and so the first two hundred metres may contain 50 million tonnes. Taking the calculation further, the net value in the ground may then be US$1bn, from which must be deducted capex of say US$100m to give a net value for the project of US$900m (£470m), before any DCF discounting. African Diamonds currently owns 49% of the joint venture though this would reduce to 30% on completion of a full feasibility study, assuming that annual gross revenues were more than US$70m. A 30% interest in such a mine may therefore be worth around £140m on an undiscounted basis. This compares with the present market capitalisation of £26m.
Investors do, however, need to remember that there is still much work to be done at the AK6 pipe before its viability can be established. On the other hand, this is only one of 29 known kimberlites on the licenses held by the joint venture and exploration using modern remote sensing methods is expected to identify further targets. In addition, African Diamonds holds several other promising projects elsewhere in Botswana and in Sierra Leone and Guinea in West Africa.
Durlacher is NOMAD and broker to African Diamonds.
