here s something about the little diamond stock that couldRex Diamonds (RXD : TSE : $3.25) David James, P.Eng (204) 988-9602
Recommendation: SELL
52-week price range: $3.60-0.72
Shares O/S: fully diluted 59M
Major shareholder: Pres. & CEO, 31%
Working capital deficit (31/30/99): US$7.2M
Long-term debt (31/03/99): US$0.6M
Weekly trading volume: 123,844
Market capitalization: C$191M
(US figures below)
Late Monday, Rex Diamond Mining Corp. announced the discovery of a
kimberlite pipe in Mauritania on its Tenoumer permit. This pipe was
discovered by pitting into a circular magnetic anomaly with a ñ300
metres diameter. Diamond analysis will be carried out shortly, and
other magnetic targets upwind of pyrope garnet and chrome diopside
indicator mineral trains are to be tested in the near future. Rex has
exploration rights on over 100,000 square kilometres in the country.
Elsewhere in Mauritania, Dia Met Minerals and Ashton Mining (Australia)
are in a joint exploration program on some 214,000 square kilometres.
Also yesterday, Rex's 1999 (year end March 31/99) annual report was
received. The two South African fissure mines, Bellsbank and Loxton
the Rex mine is shut down) produced 24,469 carats valued at
US$152/carat versus 34,708 carats at $230/carat a year earlier. Of
note is that year-end diamond inventories declined to $0.33 million
3,526 carats) from $1.9 million (6,067 carats) so that actual fiscal
1999 sales were $5.3 million (27,010 carats).
The last two years have seen inventory sales of some 12,717 carats.
Rex's production accounting of its revenue in fiscal 1999 reflects
24,469 carats (at $152/carat) or $3.73 million while production costs
were $5.49 million or the equivalent of $224/carat. After all
expenses, including property writedowns aggregating $17.7 million,
Rex's fiscal 1999 loss was $24.7 million or $0.54/share compared to a
loss of $4.2 million or $0.11/share compared to a loss of $4.2 million
or $0.11/share a year earlier. We do not have an estimate for fiscal
2000 due to a lack of production figures, but a further loss is
anticipated.
Despite concerted work by George Curtis, Rex's Managing Director in
South Africa, in workforce reductions and productivity increases, we
feel that there is a great deal of work yet to be done with limited
cash resources to see Rex as a significant diamond producer. (In
fiscal 1997 production amounted to 39,060 carats valued at $244/carat
and production in fiscal 1998 was targeted at 70,000 carats).
The company notes that it plans to launch "an e-commerce program for
the marketing of REX branded diamond jewelry straight from the source
to the retail consumer, exclusively on-line at www.rexdiamonds.com".
The diamond exploration project in Mauritania is certainly of
interest, but still at an early stage. In view of the company's
nominal level of diamond production, lack of profitability, and its
working capital deficit, the market capitalization of C$190 million is
not warranted.
The stock has (again) strengthened, apparently on developments in the
Mauritania project, and we recommend sale of the stock here. As an
alternate diamond exploration vehicle we would recommend Ashton Mining
of Canada (ACA : TSE : $0.68), 61.5% owned by Ashton Mining of
Australia, which recently announced new exploration targets for the
coming winter season in both Alberta and the Northwest Territories.
ACA's market capitalization is $19 million (see our October 5 Daily
Letter comment for background). |
