Over a five-year period, De Beers spent over $30m (£20m) appraising the AK6 diamond mine in Botswana and then decided that it wanted to mothball the project. Fortunately, African Diamonds found a more go-ahead new partner and last November De Beers sold its 71 per cent stake in AK6 to Toronto-listed miner Lucara.
The Canadians have stepped in just at a time when diamond prices are recovering. So, suddenly, African Diamonds needs to raise some money fast. By mid-April 2010 it has to find £4.8m to pay Lucara to increase its stake in AK6 from 29 to 40 per cent and within six months it will need to find the same amount again as its contribution to complete a final feasibility study and start site development by end-September. The project is two years late and the target date for the mine to come on stream is now the end of 2011. African Diamonds doesn't want to issue equity at the current share price and may be able to finance its cash calls (at a price) via project debt - possibly from now rich Botswana institutions.
So why is Lucara eager to develop the mine? The answer is that it contains an above-average number of rare Type II diamonds. Containing no nitrogen, they are big and usually flawless and sell for up to 10 times a normal diamond carat-for-carat.
AFRICAN DIAMONDS (AFD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 40.5p | MARKET VALUE: | £30.9m | |
| TOUCH: | 40-41p | 12-MONTH HIGH: | 55p | LOW: 20p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 8p* | NET DEBT: | 9% | |
| Half-year to 31 Dec | Turnover (£m) | Pre-tax profit (£000) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | nil | -775 | -1.02 | nil |
| 2009 | nil | -205 | -0.27 | nil |
| % change | - | – | – | – |
*Includes intangible assets of £3.87m, or 5p a share | ||||
