28 November 2008
Government has come to the rescue of Australian diamond miner, DiamonEx, by guaranteeing a P10 million loan the company needs to keep its newly opened Lerala Mine afloat.
The loan, extended to DiamonEx by Stanbic Bank Botswana, will enable the company to fund its operating costs following the anticlimactic sale of its first diamonds last month.
DiamonEx shareholders had been hoping its inaugural sale of 10 612 carats on October 30 would mark the beginning of returns on investment in a company whose road to production began in 2002 with the awarding of an exploration permit in the Tswapong area.However the sale was well below management's expectations, with the package selling for an average price of US$20 per carat instead of the anticipated average of between US$48 and US$57 per carat. Analysts said the depressed prices are symptomatic of the low prices prevailing for diamonds in a market where buyers are experiencing the effects of the international credit crisis.
Buyers in traditional diamond markets such as the US, Japan and India are all tightening their purse strings and moving away from purchasing "luxury" goods such as diamonds. In particular, the Indian market, which DiamonEx is targeting, has all but stopped buying rough diamonds.
Indicative of the tight cash position DiamonEx finds itself in, the company recently announced the placement of 20 million shares to raise two million Australian Dollars. The placement is in two tranches with the first having been completed on October 22 amounting to 5.3 million shares.
Pending the decision of DiamonEx's annual general meeting scheduled for November 28, the balance of shares will be placed in November. Funds from the placement are expected to further boost DiamonEx's cash position as it moves into the production phase for Lerala.
This week, DiamonEx's Company Secretary, Paul Crawford, said the government had committed itself to playing an active role in supporting the Australian miner "in this period when worldwide commodity prices and prices for rough diamonds are depressed".
In addition to underwriting the Stanbic loan, the government has also facilitated direct contact between DiamonEx and specific Indian diamond buyers with a plan for the buyers to view Lerala diamonds before Christmas. "These new financing arrangements provide scope to defer diamond sales until the market improves," Crawford said.
"We will be discussing and exploring a diamond sale directly with a number of Indian buyers before Christmas. Discussions will include possible forward off-take commitments from the buyers for the company's diamond production in the short- to medium-term."
The P10 million Stanbic loan could be increased or extended with the consent of the government, depending on how negotiations proceed with Indian or other buyers. In October, Lerala Mine produced 55 000 tonnes of ore which yielded 15 500 carats, confirming a grade of 28 carats per hundred tonnes.
More carats (up to 15 percent above 15 500) are expected to be recovered from the tailings of the ore, enabling Lerala to have a sizeable stockpile with which to approach Indian and other buyers before year-end. Crawford noted that DiamonEx remained confident in the future of Lerala despite the setbacks in its first sales.
"The directors remain firmly of the view that in the medium- to long-term, the current supply deficit in world diamond production that is expected to increase over the next decade will ensure that the market for rough and polished diamonds is strong," he said."In the short term, however, with the global credit crisis, prices will remain uncertain."
Lerala is expected to produce 350 000 carats per year from five pipes which are exposed at the surface, enabling relatively simple open-pit recovery. A 2006 study showed a resource at Lerala of about 13.5 million tonnes with carats contained of about 3.7 million.
There is also room to extend the Lerala pipes deeper, thus extending the lifespan from the currently projected 10 years.
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