DI­A­MONDCORP

Financial Mail - Investors Monthly - - Opening Bell - Allan Seccombe

Share price: 218c JSE code: DMC

SELL SHARES IN DI­A­MONDCORP, A SIN­GLE as­set com­pany, have been creep­ing steadily higher in the past year as its Lace diamond mine nears com­ple­tion.

Di­a­mondCorp, which is listed on both the JSE’s AltX and Lon­don’s Al­ter­na­tive In­vest­ment Mar­ket (AIM), is propos­ing, once the mine is in pro­duc­tion, an “ag­gres­sive re­turn of cap­i­tal” for its share­hold­ers. Its early cash flows dwarf the debt it plans to re­pay by the end of 2020.

CEO Paul Loudon is quite clear that Di­a­mondCorp has looked for other as­sets. But, to date, none have matched the bench­mark set by Lace, which will give it a 50% op­er­at­ing mar­gin and a greater than 50% in­ter­nal rate of re­turn. This is pretty im­pres­sive for a bulk, un­der­ground diamond min­ing op­er­a­tion.

The longer term plan is to mi­grate to the main bourses in Lon­don and Johannesburg once the mine is in pro­duc­tion later this year. Lace will be highly mech­a­nised, with a min­ing and pro­cess­ing cost of about R200/tonne against an­tic­i­pated rev­enue of R1,025/ tonnes based on achiev­ing 60 carats per 100 tonnes mined and an av­er­age sales price of $150/carat.

Of course, there is risk in in­vest­ing in the com­pany. A sin­gle as­set means if there are any pro­longed stop­pages at Lace, rev­enue and sub­se­quently profit could take a knock with no other as­sets in the sta­ble to gen­er­ate in­come.

Still, this could even­tu­ally prove to be a great div­i­dend play for in­vestors with the stom­ach for a bit of risk.

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