DiamondWorks Ltd DMW
Shares issued 150,962,743 [sic][actual shares out ~197mil] Aug 13 close $0.17
Fri 13 Aug 99 Street Wire
A ROCKY PAST, A HOPEFUL FUTURE
by Will Purcell
The extraction of mineral resources has long been a rewarding but high risk
venture for miners and investors alike. Over the past few years, the
shareholders and employees of DiamondWorks Ltd. have certainly experienced
the negative side of that equation. The new year has brought renewed hope
that the trials and tribulations of 1997 and 1998 are now behind the
company.
The company had its beginnings in the late 1960s, but it was not until the
beginning of this decade that it stirred from hibernation to become one of
the most active world wide junior explorers. Carson Gold Corp., the
predecessor to DiamondWorks, was formed in 1987 as a result of a change of
name, and a consolidation of the shares of Cal-Denver Resources. Ltd.,
which, after a dose of Randy Reifel promoton was a nearly dormant placer
gold company. Current shareholders may find it hard to believe, but just 10
years ago their company had fewer than two million shares outstanding.
Carson's first action was to place a Yukon placer property into production.
The project held modest amounts of gold, and the company produced just over
1,000 ounces in 1989. Little was heard of the operation again, as the
company began to pursue new and varied interests in rapid succession,
including the acquisition of a 50-per-cent interest in Advance Orchards
Ltd. Advance was one of the largest growers of commercial fruit trees and
ornamental nursery stock in Western Canada. The transition from placer gold
to horticulture may have seemed strange, but nothing compared to what would
follow.
Carson forgot about trees -- as fast as one of its promoters, Robert
Friedland, had forgotten about tree farming in Oregon a few years earlier
-- and struck out for the mother lode in South America. In a series of
deals, the Friedland sponsored company acquired interests in a number of
gold properties in Venezuela. The pursuit of gold revitalized Carson's
slumbering share price, as it quadrupled to the 75-cent mark. Flushed with
this success, more deals quickly followed, and Carson's shares outstanding
began to grow with the increasing cash demands.
Placer Dome was reporting success on its Venezuelan Cristina property, and
Carson committed itself to the area play being actively promoted by Robert
Friedland and his entourage of brokers, newsletter writers and fund
managers. In early 1993, the company arranged another private placement of
shares, the bulk of which was purchased by Mr. Friedland's Vengold Inc.
With that deal, the Friedland brothers had become a part of the story.
Robert Friedland's Vengold was now a major shareholder of Carson, and his
brother, Eric Friedland, assumed the position of chairman and chief
executive officer of Carson. The re-arrival of the Friedlands brought
Carson into the market spotlight, and the company's shares quickly
quadrupled again, to over the $4 mark.
The deal making reached new heights, and involved ever increasing sums of
cash. By now, Carson's Venezuelan efforts were concentrated in the
Kilometre 88 district, near the Las Cristinas find, and earlier
acquisitions were abandoned. Late in 1993, Carson acquired additional
properties in the region from Invesco Trading SA, in exchange for 2.5
million shares of Carson, and $5-million. Carson's Eric Friedland turned to
brother Robert for help. Vengold acquired a 50-per-cent share in the
properties by assuming the responsibility for the $5-million cash payment,
which Vengold settled with shares in lieu of cash. It was to be just one of
several complicated deals that Carson was to make with the Friedlands at
the helm.
Carson shares had retreated to just under $2 by the fall of 1993, but
quickly quadrupled once again on the strength of the latest deal, reaching
a high of $7.62 in February of 1994. It was to be Carson's high water mark,
however. The company's Venezuelan gold bloom began to wilt later in the
year. In June, Vengold sold off its holdings of Carson stock, supposedly to
finance the exploration program at the Kilometre 88 projects. With Carson
shares once again trading for less than $2, it must have seemed like a good
time to do another deal. In December of 1994, the company acquired the
Marian gold and copper project in the Philippines. That deal was followed
by another, in March of 1995, when the company made a controversial bid for
Yunnan Mining, which held properties in China.
A year later, during the spring of 1996, Carson shocked the market with two
major deals. In the first, the company announced its intention to acquire
the China Diamond Corp., offering 25 million shares for the company, which
owned the Changma diamond mine in China. That deal was quickly followed by
another, which saw Carson acquire Branch Energy Ltd., a private company
registered on the Isle of Man, for 33 million Carson shares. Branch held
significant interests in a number of diamond properties in Angola and
Sierra Leone. (Carson did its best to play down the mercenary connections
of Branch.)
It was a series of stunning deals, and a major restructuring of the
company. Carson stock was halted in early March, at $1.68, pending the
announcement of the China deal, and did not resume trading until early
September, while the market assessed the news. The Friedland-inspired deals
received favourable reviews, as Carson resumed trading at $3. The China
deal ultimately fell through, but the acquisition of Branch proceeded, and
Carson was now in the diamond business. It was a long way from growing
trees and panning for gold, and changes were called for. Change began late
in 1996, and within a year the company was transformed.
Carson began 1997 with a new name, DiamondWorks Ltd. The company had
abandoned most of its interest, and written off all of its expenditures, in
the Venezuela properties during 1995, and the Philippine Marian project was
written off the following year. DiamondWorks streamlined its holdings
further, handing off its Yunnan properties to Golden Thunder Resources Ltd.
Henceforth, DiamondWorks was exclusively a diamond explorer. Change came to
the boardroom as well, when Eric Friedland stepped down as DiamondWorks
chief, and was replaced by Bruce Walsham as president and chief executive
officer during the summer of 1997. Mr. Walsham had previously been a senior
executive with Freeport McMoRan Inc., and had overseen development of the
Bow River and Karonie diamond mines in Australia.
It was a new beginning, with mercenaries at the helm, and DiamondWorks
acted with typical Friedland speed. The company placed its first mine, Luo,
into production in July of 1997. A second mine was commissioned, at
Yetwene, in June of 1998. Exploration commenced at a brisk pace on the
company's properties in Angola and Sierra Leone. All appeared well.
The first blow came in late May of 1997, when a coup in Sierra Leone forced
the company to suspend its exploration activities indefinitely.
DiamondWorks shook off the punch, claiming its first love was really
Angola. In early November of 1998, a knockout blow was delivered. Angolan
rebel forces attacked the Yetwene mine, killing eight employees, and made
off with eight more who remain abducted to this day. If the rebels want
some of Robert Friedland's money before releasing the employees go, nobody
is talking or paying. The attack against the mercenary controlled company
was a devastating blow, and it sent DiamondWorks reeling. In addition to
the tragic human loss, the company suddenly lost much of its source of
revenue, and was faced with mounting bills.
In the spring of 1999, with its back to the wall, the company began a long,
painful journey on the road to recovery through yet another reorganization
in a bid to survive. As a result of the acquisition of Branch Energy, and a
series of private placements, the share base of the company had ballooned
to just under 100 million by the fall of 1998. By July of 1999, the share
base had doubled again, to over 220 million, as a result of debt
settlements, and still more private placements to raise urgently needed
capital. It was a bleak time for long-term shareholders.
DiamondWorks appears to be doggedly sticking to its long-term plan --
diamonds. Company president, Bruce Walsham says he and the company are
"trying to get back on our feet", and added that they were taking things on
a day to day basis. The longer term goal was to maximize production from
its current mines, and continue to develop its remaining projects. Other
than the obvious dangers and deadly surprises, the company appears to have
a chance.
The Luo property in Angola is the most advanced project. The company holds
an effective 38-per-cent interest in the alluvial operations, and a
48-per-cent stake in all kimberlite pipes. As well, it is entitled to a
management fee equal to 10 per cent of operating expenses. The Luo alluvial
diamond mine contains an estimated total resource of just over 2.5 million
tonnes of gravels, containing an estimated 460,000 carats of diamonds. The
diamonds are ofhigh quality, with recent sales averaging in excess of $200
(U.S.) per carat. The mine is currently producing up to 7,000 carats per
month, with an estimated monthly revenue of $1.5-million (U.S.). Mr.
Walsham said that the current operating expenses at Luo are running at
nearly $900,000 (U.S.) per month, and added that about one-quarter of that
was attributed to security costs. The company has been employing private
Angolan companies, Teleservice and Mambodji, to provide security, and has
increased the level of protection since the attack.
The Luo property also hosts the promising Camatchia pipe, described by Mr.
Walsham as the tenth largest pipe in the world. The Camatchia, and
neighbouring Camagico pipe, contain a resource estimated at 80 million
tonnes of kimberlite, grading 0.17 carats per tonne. The two pipes are
presumed to contain 13.5 million carats of high quality diamonds, with an
estimated value similar to that of the Luo alluvial deposits, suggesting
the ore would have an approximate value of $34 (U.S.) per tonne. If so,
Camatchia could be profitable indeed, with an estimated operating cost of
$20 (U.S.) per tonne. Mr. Walsham said that the current plan calls for
Camatchia to ultimately produce up to 400,000 carats per year. This would
suggest a mining rate in excess of 7,000 tonnes of kimberlite per day.
DiamondWorks plans to commence trial mining of the Camatchia pipe later
this year. During the trial mining period, the Luo property should produce
in excess of 10,000 carats per month. The capital cost of the 1999 work
program, estimated to be $2-million (U.S.), will be financed by Luo diamond
sales.
The Yetwene property, site of the rebel attack, is also an alluvial
deposit. DiamondWorks is entitled to a 50-per-cent share of the net income
from the property. Yetwene currently hosts reserves of just over 10 million
tonnes of gravels, containing 1.4 million carats of diamonds, and further
exploration may increase these figures significantly. The Yetwene mine
produced approximately 4,000 carats per month prior to the attack, and has
successfully resumed operations. Mr. Walsham said that, "In addition to the
heartache and sorrow of burying our own people, the worst feature of the
Yetwene attack was the need to recruit a whole new team." That appears to
have been accomplished, and the company hopes to increase production to
10,000 carats per month later this year. Mr. Walsham said the diamonds at
Yetwene were also of high quality, and carried a value similar to those
from Luo. Yetwene diamonds do appear to carry good value. Sales of nearly
the nearly 20,000 carats netted $2.6-million (U.S.) after duties and taxes,
or just over $130 (U.S.) per carat. Mr. Walsham estimated the operating
expenses at Yetwene to be similar to those at the Luo mine, running just
under $1-million (U.S.) per month.
DiamondWorks has interests in two other Angolan properties. At Luarica, the
company currently holds a 60-per-cent stake in an alluvial resource of 10
million tonnes of gravel, containing an estimated one million carats of
fine diamonds. A 1998 sampling program recovered 611 carats, which were
subsequently sold for $300 (U.S.) per carat. Luarica is not expected to be
actively explored this year, due to security concerns.
Those concerns continue to reach beyond the Angolan border. The company
holds a 60-per-cent stake in the intriguing Koidu property in Sierra Leone,
which contains a number of pipes and dykes. These bodies are currently
estimated to hold a kimberlite resource of 13 million tonnes, containing
4.6 million carats of diamonds. Continuing hostilities will most likely
prevent any work on the property this year, but the company has made a
significant investment prior to 1997. DiamondWorks spent nearly $8-million
(U.S.) on the property in preparation for a bulk sample program, but due to
the coup, the program had to be abandoned a day before the sampling was due
to begin. In the longer term, the Koidu project appears promising, and Mr.
Walsham described the Koidu pipes as "very rich". Mr. Walsham estimated the
mining cost to be around $6 (U.S.) per tonne, with total operating costs
possibly less than $20 (U.S.) per tonne. The value of the diamonds has not
been determined, but revenues should exceed expenses even at $100 (U.S.)
per carat. At $200 (U.S.) per carat, Mr. Walsham's description of Koidu
would certainly be accurate.
DiamondWorks holds a stake in two other promising properties in Sierra
Leone, on the Sewa River. These properties, the upper and middle Sewa, hold
probable reserves of approximately seven million tonnes of alluvial
deposits, containing an estimated 1.7 million carats of diamonds. No work
is planned on the property this year.
In all, DiamondWorks holds an average 50-per-cent stake in alluvial and
in-situ deposits in Angola and Sierra Leone, containing an estimated total
resource of 22 million carats of diamonds, with a potential value in excess
of $3-billion (U.S.). The company also holds interests in additional
projects in these countries, in Lesotho, and in Canada.
While the alluvial mines at Luo and Yetwene will produce up to 160,000
carats yearly, Mr. Walsham believes that the larger scale projects will be
the ultimate path to recovery for DiamondWorks, saying, "the future of the
company depends on Yetwene and Camatchia, and on developing the Sierra
Leone properties, when appropriate". He said that, in full production, it
would be reasonable to expect Camatchia to contribute 300,000 carats
annually. It appears likely that a future Koidu mine could produce diamonds
at a similar rate. Mr. Walsham also stated that Yetwene could be expanded
to produce up to 300,000 carats per year, with the construction of a new
dense media separation plant, and other improvements.
If all went exceedingly well for a change, in a few years, the DiamondWorks
mines could conceivably be producing 900,000 carats a year, with gross
revenues to the company of $80-million (U.S.), or more. The question of
financing remains, however. Although some of the capital expenditures
necessary to reach these production levels will come from the existing
operations, to fully develop the properties, Mr. Walsham said the company
would have to raise additional capital.
With DiamondWorks stock trading in a narrow range below 20 cents, current
shareholders can only hope that massive private placements will not be the
order of the day. With the murder and mayhem hopefully in the past,
investors can only hope that better times lay ahead. If peace comes to
Angola and Sierra Leone, the company should see a much brighter future.
With that hope, Mr. Walsham pledged the company would "keep working toward
better days."
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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How are ya, chuck .. you still following this one? .. good to see WillP take an interest, i was getting lonely over here .. nice little bounce back on the Spear and Rex eh .. cheers
[edit] - there is some interest on the Stockhouse thread - stockhouse.com |
