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.
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