Namakwa sizes up DiamondCorp

Brendan Ryan | Fri, 02 Oct 2009 16:49
[miningmx.com] -- MARKET sources believe a deal may be on the cards between London-listed Namakwa Diamonds and DiamondCorp, which is listed on the London and Johannesburg stock exchanges.

DiamondCorp is developing the Lace kimberlite mine near Kroonstad in the Free State but has run into financial problems because of the collapse in rough diamond prices since the end of 2008.

That forced DiamondCorp to stop treating tailings dumps at Lace, which in turn hit forecast cash flows expected to help fund development of the underground mine.

DiamondCorp CEO Paul Loudon said on September 30 that the company had to raise finance to continue the development of decline and vertical shafts to the 330m level before its operations could become cash positive.

He added DiamondCorp had received a number of finance proposals and must accept one of them, otherwise the company “would not have the funds to meet an interest payment due on October 14”.

Loudon said: “Until one of the proposals is accepted and final agreements executed, there remains uncertainty as to the company’s ability to meet its future financial commitments and continue as a going concern.”

Two black economic empowerment (BEE) companies – Shanduka Resources and Sphere Holdings – own a 13% stake each in the Lace mine.

Suggestion in the market is that another diamond company is looking closely at a deal with DiamondCorp. However, very few diamond companies have spare cash for merger and acquisition activity under current grim diamond market conditions.

Two companies that do have funds available are Namakwa and Trans Hex. However, Trans Hex has so far avoided kimberlite operations, preferring to stick to alluvial diamond mining.

According to an interim management statement published on July 7, Namakwa had cash on hand at that date of $18.9m. Namakwa’s net working capital was stated as $48.9m at the end of May, taking into account diamond inventory valued at $22.3m.

Namakwa has operating mines in South Africa’s North West province as well as development projects in Angola, Namibia and the Democratic Republic of Congo (DRC).

Namakwa commissioned two dense media separation plants in the DRC in May. It claims to be the only large-scale diamond mining company still active in that country at present.

Namakwa investor relations spokesman Rob Newman said: “We have been talking to everyone in the diamond sector and have followed DiamondCorp’s situation with interest, but there is nothing specific to say at this stage.”

Loudon said: “We have been talking on and off with Namakwa for some time, but there’s nothing specific to say in respect of Namakwa or any other company at the moment.

“We have some offers on the table from investors and existing shareholders and that’s the most likely route that we will take. We have to take a decision one way or another over the next week on how to best preserve value for shareholders in difficult times.”