Theo Botoulas, CEO BRC DiamondCore
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Sefalana to sue BRC DiamondCore
Brendan Ryan
Posted: Mon, 14 Apr 2008

[miningmx.com] -- Latest results from BRC DiamondCore (BRC) provide at least one possible reason for the company’s dreadful share price performance - it needs to raise more funds and fast.

But a second reason could well be that former black economic empowerment (BEE) partner Sefalana is finally taking legal action against BRC.

BRC – or to be specific Diamond Core Resources (Diamond Core) which merged with BRC Diamond Corp (BRC Diamond) to create BRC - terminated Sefalana’s participation in October last year.
board approval to begin the legal process
At the time Diamond Core stated that the BEE agreement had been declared void as “a direct consequence of the Sefalana consortium not having met the conditions precedent to the preference share agreement as well as other provisions.”

Sefalana CEO Lesedi Rakakgong replied that Sefalana would “defend its interests at law” but nothing happened.

There was considerable speculation that Sefalana would act in the run up to the meeting held on January 14 to approve the merger but, again, nothing happened.

It now seems that Sefalana’s patience has finally run out. Sefalana director Gordon Young told Miningmx that; “as all Sefalana’s efforts to settle the dispute have failed, Sefalana has obtained board approval to begin the legal process to recover our shares and papers will be served shortly.”

The BRC share price has fallen off a cliff since the merger was completed in mid-February. Terms of the deal were that Diamond Core shareholders received one BRC Diamond share for every 24,5 Diamond Core shares they held.

The high on the JSE for the merged BRC group since it started trading was R36 but the shares fell to a new low of R16 during Friday’s trading which is a drop of 55% in about two months.

Let’s link that back to the share price performance of the independent Diamond Core before the merger.

At R16 the BRC price is equivalent to a price of 65c for Diamond Core which sat at 153c immediately prior the merger which means a drop in value of 57,5%.

But Diamond Core shares had traded as high as 180c in the weeks running up to the merger which represents a fall of 64%.

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The 2007 financial statements – which relate the operations of BRC Diamond ahead of the merger - show debt of C$3m ( previous year – nil) and the directors’ review stated this had been increased since the year-end to C$6m.

The money will fund BRC’s exploration activities until the end of June and that loan has been guaranteed by Banro Corporation. BRC has agreed to pay the money back by July 28.

According the review “the company will need to raise additional capital in 2008 to fund its exploration programme for 2008 and to repay the loan facility. “

But the directors then warn that; “the company has relied primarily on equity financings to fund its activities. Although the company has been successful in completing equity financings in the past, there is no assurance that the company will secure the necessary financings in the future.”

One of the key motivations for the merger with Diamond Core was that its projects in South Africa - which were close to coming into production - would be able to help fund the exploration ventures in the Democratic Republic of Congo.

But the group has yet to sell meaningful amounts of diamonds produced from either its Paardeberg kimberlite project near Kimberley or the Silverstreams alluvial project near Prieska.

BRC sold some diamonds last month but, according to CEO Theo Botoulas, the sales were part of the “evaluation process” at the two projects which were not yet in commercial production.

Bulk sampling at Silverstreams started last May but Botoulas reckoned a decision on whether Silverstreams is viable would only be made by the end of the third quarter this year.

Which is why perhaps shareholders should pay close attention to another caveat in the latest “outlook” from the directors.

They commented that; “the anticipated benefits of the Diamond Core acquisition will depend in part on whether Diamond Core’s operations can be integrated into the company’s operations in an efficient and effective manner.”