The sun may be close to setting on Sunrise Resources (SRES). Drilling results are due soon from the company's Cue diamond project in Western Australia. Should they come back negative, Sunrise will be out of luck - and out of money.
- Drilling results could be positive
- Barite prospect could well be commercial
- Low odds on success in diamond exploration
- Running low on cash
- Executives paying themselves in shares
- Limited interest in barite
At least the company had a good summer. Since July, Sunrise's share price has more than doubled in the hope that drilling will turn up a big diamond find. Sunrise completed a 10-hole drilling programme at Cue in September to test a 'kimberlite dyke' - a volcanic rock formation that sometimes hosts diamonds - as well as other nearby targets.
True, a few diamonds have been found at Cue. From 1994 to 2002, De Beers, the world's biggest diamond miner, explored the claims before abandoning them after failing to find diamonds in substantial quantities. Now, Sunrise is trying to find the diamonds that the world's best diamond geologists missed.
The odds of this happening aren't great. A recent report on the diamond industry by management consultant Bain & Co said: "The probability that a producer will find a deposit that both contains diamonds and can be commercially developed into a diamond mine is only about 1 to 3 per cent." The report did not try to calculate the probability of success for a project that has already been explored but found wanting.
SUNRISE RESOURCES (SRES) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1.45p | MARKET VALUE: | £5.3m | |
| TOUCH: | 1.45-1.65p | 12-MONTH HIGH: | 2.55p | LOW: 0.58p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 0.5p | NET CASH: | See text | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | nil | -0.63 | -0.45 | nil |
| 2009 | nil | -0.23 | -0.12 | nil |
| 2010 | nil | -0.21 | -0.10 | nil |
| 2011 | nil | -0.54 | -0.18 | nil |
| 2012* | nil | -0.29 | -0.10 | nil |
| % change | - | - | - | - |
Normal market size: 80,000 Market makers Beta: 0.8 *Northland Capital forecasts | ||||
Meanwhile, Sunrise is running out of money. The company had just £922,000 in working capital as at 31 March, the date of its last reported financial results. Most of that will have been spent on the drill programme, however, as well as an initial study for the company's Derryginagh white barite project in Ireland, due for release this month.
With financing from the City for risky exploration increasingly difficult to tap, management has been trying desperately to preserve what cash is left. Patrick Cheetham, Sunrise's executive chairman, and several other directors have been receiving Sunrise shares in lieu of salaries for more than a year now.
Finding capital for the Derryginagh project will also prove difficult. White barite, a mineral used primarily as a filler in paints and plastics, isn't likely to garner much investor interest. Besides, Derryginagh last produced barite in 1922. A few companies have looked at it since then, but the shallowest and easiest mineralisation has already been mined. Moreover, cheaper suppliers in China and India provide an upper limit to prices.
That said, the 'scoping' study, which will give a rough outline of the costs and potential profits involved, may well show Derryginagh to be mildly economic. Drilling at Cue will also probably turn up a few small stones, mirroring the results of De Beers. But we're not holding our breath on the one-in-100 chance that Sunrise will find something really worthwhile.
