Elu­sive al­lu­vial di­a­monds huge prob­lem for min­ing firms Trans Hex and Rock­well’s share prices are strongly up so far this year but don’t throw cau­tion to the wind.

Finweek English Edition - - THE WEEK -

in­vestors in al­lu­vial di­a­mond min­ing firms Trans Hex and Rock­well Di­a­monds may well have found their in­vest­ment re­turns as des­o­late as the North­ern Cape’s Orange River where these min­ers op­er­ate. On a five-year re­turn ba­sis, shares in Trans Hex have gained only 14% while Rock­well is down 71%. Dur­ing this pe­riod, the two com­pa­nies have been in a con­stant flux of re­or­gan­i­sa­tion and re­struc­tur­ing of their SA op­er­a­tions.

In the past, a lot of the di­a­mond min­ing in the North­ern Cape was done by ar­ti­sanals, mostly farm­ers, who op­er­ate on a potluck ba­sis and don’t have ranks of off­shore share­hold­ers to pacify when things go wrong.

And when things go wrong it’s al­most al­ways a fail­ure to tackle the chal­lenges of the dif­fi­cult na­ture of min­ing in the re­gion. The fact of life in Orange River di­a­mond min­ing is that the ge­ol­ogy makes for widely dis­persed di­a­mond de­po­si­tion.

Un­like the di­a­monds found in kim­ber­lites, the vol­ca­noes or pipes from which di­a­monds were first formed hun­dreds of mil­lions of years ago, al­lu­vial di­a­monds are widely dis­persed as they are car­ried along rivers of lava from the vol­ca­noes.

It’s for this rea­son that Jo­han Dip­pe­naar, CEO of Pe­tra Di­a­monds, is wary of the al­lu­vial di­a­mond sec­tor.

“Di­a­monds in a kim­ber­lite are well dis­trib­uted and known whereas in al­lu­vials you don’t know if you’ve missed a mil­lion-dol­lar stone,” he said. It’s there­fore hard to mea­sure rev­enue losses.

In an ef­fort to mit­i­gate this risk, Rock­well Di­a­monds has spent mil­lions of rands in­vest­ing in X-ray equip­ment that’s able to spot the gems when they come along. It’s also why it has tar­geted a min­ing rate of a stag­ger­ing 500 000m3 of gravel per month. So far, it hasn’t achieved that type of vol­ume, which lies at the ba­sis of the firm’s prob­lems. Trans Hex also has to tar­get vol­ume.

How­ever, shares in both com­pa­nies are strongly up so far this year. At the time of writ­ing on 21 June, Trans Hex’s share price was 34.5% higher year-to-date while Rock­well was 36% higher, ac­cord­ing to INET BFA.

James Camp­bell, CEO of Rock­well, said the

Mark Bris­tow Non-ex­ec­u­tive chair­man of Rock­well Di­a­monds

Jo­han Dip­pe­naar CEO of Pe­tra Di­a­monds

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