Diamond Core in a league of its own

[miningmx.com] — A junior diamond exploration outfit with cash in the bank of R200m-plus? Wow!

Considering that one of its confreres has spent some years unsuccessfully trying to buy properties from its own controlling shareholders, and others live pretty much hand to mouth, this puts Diamond Core in the blue chip category.

Much of the June 30 balance sheet cash of R220m was raised during the financial year by share issues at 120c.

The year also saw the acquisition of Samadi Resources (Pty), which has an interesting portfolio of alluvial diamond prospects, financed by the issue of shares at 130c. So the present price of 95c is considerably less than these transaction prices, while the cash holding is equivalent to a healthy 75c a share.

Put another way, a market capitalisation of R283m is a premium of only R63m to the cash holding.

Diamond Core has a number of alluvial and kimberlite prospects and ambitious plans to develop them.

It plans to spend R60m this year on each of the Silverstreams and Uitdraai alluvial projects, next to each other on the Orange River 10km upstream from Prieska, and R45m on Paardeberg, a kimberlite project 40km west of Kimberley. Total planned spending this year is R200m, so within the next 12 months another fund-raising exercise is on the cards.

Diamond Core plans to focus on larger – and thus higher-value – stones in its continuing prospecting activities. While it wants to take part in a consolidation of what it rightly calls the fragmented diamond exploration sector, it stresses that acquisitions will be selective.

Nevertheless, it clearly has ambitions that run well ahead of its current projects and prospects.

It has other advantages, too. The well-respected CEO Theo Botoulas has had a long career in the diamond mining industry. A key driver has been James Allan, a top-rated diamond analyst before he set up his own consultancy.

RMB is a major backer, and Diamond Core in fact says more than 50% of its shares are now held by institutions.

No mining prospect is ever risk-free, and diamonds are arguably more risky than most. So this is not a stock for the risk-averse. But it looks to have better in-depth management and access to finance than most junior miners.

The present share price is not far from the bottom of the trading range for the past 12 months of 230c-80c; given all the necessary health warnings, it looks a well above average spec.

Michael Coulson is a columnist for Fin24