Dow Jones story today:
DJ Europe Stock Focus: Diamond-Price Recovery Helps Shrs
Story 0494 (T.NMR, DBRSY, NMCOF, NMR-T, O.DBR, O.ODM, O.RGR, O.RMB, O.TSX...)
By Andi Spicer
JOHANNESBURG (Dow Jones)--Southern African marine diamond miners are making
a grab for rivals' shares in sneak attacks prompted by a recovery in diamond
prices and cutting-edge underwater technology.
This has led to some stock prices rising more than 250% since the beginning
of the year in an industry formerly dominated by basic mining methods, old sea
dogs, former U-boat submarine captains and retired spies.
Since early January, the Johannesburg Stock Exchange's benchmark Diamond
Index has jumped 126% in rand terms, and the performance of its individual
members is even more startling.
The dominant company in the sector, De Beers Consolidated Mines Ltd.
(DBRSY), the globe's premier uncut diamond producer, has tracked the index. De
Beers has a joint venture with the Namibian government in Namdeb Diamond
Corp., which is the world's largest marine diamond miner.
The most volatile activity has been among the mainly smaller marine and
alluvial miners, which have smartly outperformed the index.
Shares in junior-miner Ocean Diamond Mining Ltd. (O.ODM) have risen more
than 260%, and they were up as much as 300% at their peak. Rival Trans Hex
Group Ltd. (O.TSX) has stormed ahead more than 110%, while an ailing Benguela
Concessions Ltd. (O.BNC) has slumped 30%.
The new kid on the block - Namibian Minerals Corp. (NMCOF), known as NAMCO -
is the most successful. It's listed on the Nasdaq market, in Toronto and on
the Namibian Stock Exchange, and in a few years will compete with Namdeb, say
analysts.
New Kid Namco's Share Price Has Dashed Up 265%
Namco's share price in Canada has risen 265% to C$7.50 since early January,
outperforming its rivals in hard currency terms. Analysts expected this
performance to accelerate.
The battleground is Namibia and the northwest coastline of South Africa,
which has vast resources of offshore diamonds, washed down ancient river beds
and pushed up the west coast of southern Africa by waves and winds over tens
of millions of years. Since 1908, more than 100 million carats has been
recovered from Namibian and South African waters.
Marine diamond mining accounts for more than 50% of total Namibian diamond
production, with 98% of this gem quality, among the highest value output in
the world.
While early mining was primitive, the future lies with underwater robots
that crawl along the ocean floor on tracks, sucking up gems like a giant
submarine vacuum cleaner.
Namco's seabed crawler, commissioned last year, has collected more than
150,000 carats of the precious stones, worth $21 million, in the last six
months from the waters off Namibia. Full-year production is scheduled at
260,000 carats.
The robot is operated remotely from a surface ship with a pilot that directs
the machine along submarine valleys, avoiding giant boulders and submerged
cliff faces.
Although only a small company, Namco has already matched one-third of De
Beers' annual marine production.
"With one ship we've produced half the output of De Beers' marine output,
which uses four ships," says Namco Chairman Alastair Holberton.
Not content with this, he has snuck in with a surprise grab for a hefty
slice of Ocean Diamond Mining's equity recently, buying 34% of the company. He
took over as Ocean Diamond Mining's chairman two weeks ago and wasted no time
in launching a full bid for the company.
Deal With Ocean Diamond Mining Increases Potential
"Buying (Ocean Diamond Mining) increases its reserve base and gives it the
ability to do more exploration as it will have more ships. A lack of reserves
has been the Achilles' heel for Namco," says Ross Gardiner, diamond analyst
with Societe Generale Frankel Pollak Ltd. in Johannesburg.
The combined Namco and Ocean Diamond Mining output at 340,000 carats a year
puts a new merged company into the De Beers' league.
"Namco is an excellent company with world-beating technology and excellent
growth potential. Using existing plans it will produce more offshore Namibia
diamonds in three years than De Beers," says John Clemmow, an analyst with
Investec Henderson Crosthwaite in London.
In a tricky move, Holberton invested a large part of the company's overdraft
in its seabed crawler, a risk that has paid off handsomely.
"He succeeded against our expectations and now Namco has a better crawler
than De Beers," says Gardiner.
Hilton Ashton, diamond analyst with BOE Securities Ltd., agrees Namco has
stirred up a frenzy.
"Because of Namco's success and the coming of age of the industry, the
smaller operators have proven that there's good profits to be made in deeper
waters," Ashton said.
Now that the industry has matured, the push is for mergers and
consolidation.
There has been constant rumors of a three-way merger between Namco, Ocean
Diamond Mining and Trans-Hex. But this talk has been squashed by Trans Hex,
which is controlled by South African tobacco and financial behemoth Rembrandt
Group (O.RGR).
Trans Hex testily affirmed on Thursday its intentions. While discussions
with Namco had recently been held to "explore potential areas of cooperation
between Trans Hex, Namco and Ocean Diamond Mining, no such merger involving
Trans Hex was imminent, nor was any potential merger under discussion," said
Trans Hex Managing Director Neil Hoogenhout.
Ocean Diamond Mining and Trans Hex almost merged in June, but this failed
and Trans Hex then took a large equity stake in Ocean Diamond Mining. Trans
Hex is also planning to merge with Benco.
As for a full merger of Namco with Trans Hex, analysts say wait and see.
-By Andi Spicer, 27-11-726-7903; andi.spicer@dowjones.com
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