Paul Loudon, CEO, DiamondCorp
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DiamondCorp cash-flow positive this year
Allan Seccombe
Posted: Tue, 31 Mar 2009

[miningmx.com] -- DIAMONDCORP plans to be cash-flow positive this year as it ramps up production of high-grade underground kimberlitic material, which will ensure it can stay in business in a diamond market that is unlikely to see recovery in price much before the end of 2010.

DiamondCorp stopped processing tailing material during 2008 to focus on bringing its underground mine at Lace into production this year and hitting full production in 2010. It hopes its underground diamonds will achieve prices nearly double those for the tailings diamonds.

DiamondCorp recorded a doubling in its loss for the year to end-March 2009 at £4.29m, with the bulk of capital outflow coming from administrative expenses growing by £1m to £3m. Revenue bounced up by a 1,122% to £917,000.
we can make money at these depressed diamond prices
“We hope we will produce 600,000 tonnes this year from underground and if the grade is similar to the upper level kimberlite then we are looking at 25 carats per hundred tonnes,” CEO Paul Loudon told Miningmx.

That works out to around 150,000 carats.

“Because we’re aiming for the high-grade coherent kimberlite first we hope the grade will be substantially higher at 40 to 50 carats per hundred tonnes,” Loudon said.

“We are quietly confident the grade will be sufficient so that we can make money at these depressed diamond prices,” he said. There is demand for good quality, small diamonds, he added.

DiamondCorp has seen signs of an improvement in diamond prices, based on its March sale of nearly 2,300 carats in Johannesburg from the last of the inventories built up from its tailings treatment.

It achieved an average price of $39.51/carat, a 32% improvement from the November sales as supply and demand fundamentals kick in after large production cutbacks by major producers like De Beers and Alrosa. The March price is, however, 40% lower than those achieved a year ago.

“We’re quite happy with those prices because we’re now budgeting only $70/carat for the full range of diamonds from underground,” Loudon said.

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The tailings diamonds are those missed in processes dating back to the 1930s whereas the kimberlite offers untouched diamond resources.

“We don’t see diamond prices improving at all until maybe the last quarter of 2010 and even when it does turn it’s only going to be slight, you’ll not see the prices we saw in the middle of last year until some time between 2014 and 2017,” he said.

While demand has tapered off on the retail side due to the global economic slow down, there is still a “glut” of diamonds within the cutting and polishing sector that has to be worked out of the system for them to pay down debt incurred when diamond prices were higher, he said.

Lace is unlikely to process any more than 4,000 tonnes of ore a day because of water constraints around the mine.

“But 4,000 tonnes a day of high grade material will allow us to produce more than 500,000 million carats a year at peak production,” he said. “We’ll be cash flow positive this year if the grade is there. We’ve got minimal debt.”

The State Diamond Trader, which has the right to buy 10% of a diamond company’s production, has not bought any diamonds from the company.

Loudon said if DiamondCorp had not found suitable acquisition targets when diamond prices were high, it’s unlikely to do so now that the market is in distress.