October 16, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: CARAT JUICE
Growing numbers of nervous punters in today's slack stockmarket are flogging their shares and switching into cash. That might be a judicious move for many but, for bolder players, the sliding market will open opportunities to buy cheap. Look at County Diamonds. It listed in May following a successful public share issue at 20¢. Six weeks later, with the shares down to 15¢ to 16¢, this column (Farming the strike, July 30) identified County as the cheapest diamond producer on the boards. It then had a market capitalisation of less than $5.5m backed by $2m cash at the bank, leaving little value on its producing South African diamond tenements. In the June quarter, since trial mining began in April, County recovered 629 carats, or 814 stones averaging 0.77 carats each. In that period 530 carats were sold for a gross $456,000, or an average of almost $800 a carat.
Since then, County's shares have slid to a low of 10¢, giving the company a market capitalisation of just $3.44m. The production report for the end of the September quarter is not due until the end of this month, with expectations that gravel grades may have been a bit patchy during the quarter, but the company is operating at near break-even as it defines future mining targets.
What encourages me is that mining analyst and chairman Warwick Grigor was buying during the last week of September, adding 35,000 shares at 13¢ and 50,000 at 10¢ to his holdings.
County is focused on the low-capital cost extraction of alluvial diamonds from tenements in the south-west Transvaal where, so far, 18.65 million tonnes of diamond-bearing gravels have been identified within the leases at 1.12 carats per 100 tonnes for a contained 209,156 carats. County acquired the right to mine for five years, with a right to extend for five years. That cost County $356,000 cash plus an issue of 12.5 million vendor shares (escrowed from trading until April 2004). Holder of the vendor stock is geologist Patrick Harford, who is chief operating officer at the mine site.
Ahead of the May float, sponsoring broker Finlay and Co. reported an independent expert had valued the leases at $US13m ($23.5m), based on work carried out since 1997 to evaluate the gravels. That is almost seven times the company's present lowly market capitalisation.
Another South African diamond player, Namakwa Diamond Company, saw its shares up 2.5¢ to 15.5¢ last week, taking its market capitalisation up to $8.8m. A positive recommendation from Montagu Stockbrokers no doubt helped, with a net present value for Namakwa's shares estimated within a range of 26¢ to 83¢. Confidence was also bolstered as Perth-based chairman Karl Simich visited Sydney and Melbourne brokers to show off a box of sparklers recovered from bulk sampling ancient strandlines on the company's onshore tenements on the west coast of South Africa.
Namakwa's Australian affiliate, Kimberley Diamonds (which owns about 6% of Namakwa), could earn only modest support last week when it announced its biggest diamond find yet from its Ellendale field in WA. The 11.47-carat stone sent Kimberley's shares surging 4¢ to 38¢ for a day (valuing the company at $40m), then fell away.
Meanwhile, we recorded last week that two Australian companies with copper deposits in Laos, PanAust and the 50 times larger Oxiana Resources, delivered enthusiastic presentations to the Sydney Mining Club. That helped propel Oxiana's shares up 1¢ to 37¢, before easing back to 36.5¢ late last week, valuing the company at more than $200m.
Oxiana has 80% (Rio Tinto 20%) of a world-class copper deposit with its Sepon project in Laos, with a mineable reserve of 13.5 million tonnes of 5.1% copper. In addition, it has an inferred resource of 58.1 million tonnes of 1.8 grams/tonne gold. First gold production is planned by early 2003 based on an initial reserve base of 9.1 million tonnes of 3.2 gpt, or a contained 900,000 ounces. That will help fund the opening of the copper mine in late 2004 with an expected cash cost of US35¢ to US40¢ a pound. (Current price is about US69¢/lb.)
Oxiana is becoming a serious investment stock that should get increasing support fro m the flood of funds washing the hands of institutional investors. I see J.B. Were last month issued a recommendation on Oxiana valuing the emerging miner at 53¢ a share with upside to 76¢. Analyst Ian Preston labelled the Sepon deposit, with a copper go-ahead price of less than US60¢/lb, as "the best greenfield copper project in the world".
I hear at least three other heavyweight brokers are about to put out "buys" on the stock. Meantime, I sold a couple of slow movers to cut debt.
Sold
20,000 Renison Consolidated @ 8¢ = $1568
(Bought @ 11¢; 28.8.02) RSN.AX RSNCC.AX
20,000 Dioro Exploration @ 11.5¢ = $2254
(Bought @ 12¢; 4.7.02) DIO.AX DIOO.AX DIORF.PK DIORY.PK
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