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December 2, 1999 AXXel Knutson's Flash Recommendation: Using, AXXel Knutson's VTAR? Nambian Minerals?why dig for diamonds if the river has already done it for you? [NMCOF-$5.94] ["Volume Trade Analysis Research"?] "Manage the risk?the profits will take care of themselves" "In this business, being right is not as important as making money?consistently, and one of primary tenets of the quest is the avoidance of the 'obvious risk'" From AXXel Knutson, EVP & Director, Institutional Equity Research www.tradingweapon.com a premium investor service of Platinum Equities, Inc. Member NASD & SIPC 80 Pine Street-32nd Fl-New York City 10005 Email: tradingweapon@aol.com Telephone: 800-696-9002 or 212-271-0075 FAX: 212-271-0092 Platinum is not yet registered in the state of Maine & the Commonwealth of Puerto Rico and we are not currently in a position to service your investment needs in those jurisdictions. We clear our securities business through RPR Correspondent Clearing, a division of Dain Rauscher Inc. Trading Engine? VTAR? [Volume Trade Analysis Research?] Trade and service marked by and owned by Axxel Knutson and is licensed to Platinum Equities, Inc. under revocable license. ¸ 1999 all rights reserved, Axxel Knutson NAMCO [NMCOF-$5.94] Chart is courtesy of Silicon Investor Since most American really don't know jack about mining and diamonds, it might pay to give you some overview on the industry before we dive into the meat of this recommend ion?. I'm sure you will agree. Well, I'm not absolutely sure of that, but I am pretty sure. Almost. In an overview of 1998 diamond mining and exploration by Dr. Luc Rombouts, Terraconsult bvba Oosterveldlaan 273 B-2640 Mortsel-Antwerp BELGIUM He states the following relative to worldwide production of diamonds: "The natural rough diamond mine supply was 120 million carats in 1998, worth US$ 6.7 billion. The amount of carats produced was the same as in 1997, but their value was down by 5% (US$ 7 billion in 1997). The drop in value was mainly due to an overall weakening of diamond prices in 1998. In volume terms, new production from Canada and Southern Africa, was offset by lower production in Congo and Angola. Sales of rough diamonds by the Central Selling Organisation (CSO) were in 1998 US$ 3.35 billion, 28% below the previous year and the lowest level since 10 years. The CSO stockpiled during the year diamonds valued at US$ 400 million from its contractual suppliers. The CSO stockpile at the end of 1998 was valued at US$ 4.8 billion. The strict supply policy of the CSO managed to clear up US$ 1 billion worth of diamonds out of the long pipeline from mine to retailer. The diamond stocks in the trading and cutting centres are estimated at US$ 4 billion. Retail sales of diamond jewellery worldwide were down 3% in 1998. The drop was most marked in South-East Asia, where sales dropped by 35%, and in Japan, down by 19%. On the other hand sales were up in the USA (+9%) and in Europe (+4%). Mine production The most important event in 1998 was the opening of the Ekati mine in the North-West-Territories of Canada. The opening of the mine is the fruition of a decade of successful diamond exploration in Canada. Ekati is a joint venture between BHP (51%), Dia Met Minerals (29%), Charles Fipke (10%) and Stuart Blussom (10%).The mine is expected to produce about 3 million carats of diamonds per year, worth close to US$ 400 million. The mine started producing diamonds in the last quarter of the year. Production in 1998 was only 250,000 carats, but by now Ekati has reached its full production rate of 250,000 carats per month. Initially diamonds were sold independently through the BHP sales office in Antwerp. In March 1999, the joint venture partners announced that 35% of the Ekati diamonds are going to be sold through the CSO. With the expansion in the past few years at Jwaneng and Orapa, Botswana is now firmly the world's leading diamond producer. In 1998 Botswana produced 20 million carats, estimated to be worth US$ 1.6 billion. Jwaneng is the world's richest diamond mine, producing annually diamonds worth US$ 1.1 billion. A new fully automatic sorting and picking facility was installed. The expansion at Orapa is still ongoing and production should reach 12 million carats the next year. In Russia, decreasing production at the largest mine, Udachny, is being compensated by increased production Jubilee and the newly opened underground operation at International, near Mir. International should procuce only 200,000 carats per year, but diamonds are of excellent quality. The Russian diamond producer, Alrosa, signed in November 1998 a 3 year marketing agreement with the CSO. The amount of Russian diamonds sold through the CSO should be between a minimum of US$ 550 million per year and a maximum of 26% of total CSO sales. In South Africa, production at Marsfontein started with exceptionally high diamond grades. Marsfontein is a small rich kimberlite pipe with a grade of 2.6 carats/tonne, owned 60% by De Beers and 40% by Southern Era, the discoverers of the deposit. Southern Era lost the majority share to De Beers after a legal battle about the mining title. Controversy continues at Marsfontein now that the Government Valuator has challenged the De Beers pricing structure of the diamonds. The Government Valuator claims that the CSO offers too low prices for the Marsfontein goods. De Beers has invited the participation of a black empowerment business group (49% share of De Beers' 60% share) in the project. Reserves at Marfontein down to a depth of 150 metres would last till July 2000. Treatment of lower grade stockpile could extend the operation to October 2001. Southern Era fully owns the Klipspringer property adjoining Marsfontein. The Klipspringer project is expected to run at a production rate of 70,000 carats per year. De Beers is restructuring its older mining operations in South Africa. The new treatment plant in Kimberley should extend the life of the dump retreatment and mining operations by 15 to 25 years. Underground mining operations at Premier are going to be extended to the 1000 to 1200 m depth range, sufficient for a mine life till 2030. Transhex, who mines the alluvial deposits of the Orange River on the South Atlantic coast, merged with Ocean Diamond Mining (ODM), a small but successful offshore diamond producer. [NOW WE ARE GETTING TO THE MEAT OF IT] Transhex produces 180,000 carats per year, worth US$ 40 million, at the Baken mine, while ODM produces 57,000 carats per year, worth US$ 9 million, from their offshore concessions near LĀderitz in Namibia. Alexkor is mining the coastal deposits south of the Orange River at a rate of about 125,000 carats per year from onshore operations and close to 9,000 carats from offshore operations, worth close to US$ 40 million in total. The operation is state-owned and struggling. As a first step to privatisation, a management contract was awarded to Nabera Mining, a consortium led by Petra Diamonds, listed in London. In Namibia, Namdeb, a joint venture between De Beers and the Namibian state, produced 779,000 carats onshore and 497,000 carats offshore. Namco has emerged as the country's second largest producer. In 1998, Namco produced 128,000 carats and plans to another vessel, aiming at producing 300,000 carats per year. In the last quarter of 1998, Namco obtained US$ 132/carat for its diamonds, while in March 1999 the average selling price increased to US$ 153/carat. The diamond industry is the key component of the Namibian Mining Industry. Namibia is the source of the richest alluvial diamond deposits in the world. Namibia has become one of the world's leading gem-quality diamond producers contributing some 30% of world output. Exports have risen every year since independence, save for a slight drop in 1994. They make up 35 per cent of total exports, against 30 per cent in 1990. About 98% of the diamonds mined in Namibia are of gem quality and since mining started near Luderitz in 1908, more than 100 million carats have been mined. In 1996, diamond production was 1486 million carats, mostly gem quality. Diamond mining is centred around Oranjemund on the border with Namibia's southern neighbour, South Africa. Most production sites are offshore. Onshore deposits are finally becoming exhausted. Offshore diamond mining in Namibia has soared during the 1990s growing from 29,000 carats in 1990 to 650 000 carats in1997. The potential for gem diamonds off Namibia's shores has been estimated at 1.5 billion to three billion carats, of which 95% are expected to be gem quality. With the country having the highest value diamonds in the world at US$320 a carat, the number of vessels mining diamonds off its coast is increasing. The biggest producer is the Namdeb Diamond Corporation, an equal partnership between De Beers' and the Namibian government. There are considerable reserves offshore, and marine mining accounts for about a third of current production. In mid 1998, Almazy Rossii-Sakha, the Russian diamond company, and the Namibian government signed a co-operation deal covering marketing, exploration and production, cutting and polishing. Namibian listed companies Ocean Diamond Mining Holdings and Namibian Minerals Corporation have joined Namdeb and Canadian company Diamond Fields International to form the Namibian Marine Diamond Mining Association in an effort to negotiate more efficiently with the government. Namibia imposes a 10 per cent royalty on the export of rough diamonds but not on the export of polished stones. Namco The Namibian Minerals Corporation (NAMCO), established in 1991 and listed on the Vancouver, Toronto and Namibian Stock Exchanges, is the second largest holder of Marine Diamond Concessions in Namibia. Namco holds exclusive prospecting rights over five marine concessions totalling 5600 km2 off the west coasts of Namibia, at Luderitz and Hottentots Bay, and South Africa. It has an output of around 750,000 carats per year which is likely to increase significantly as the company exploits its three marine and one Orange River diamond concessions. Most of Namco's diamonds discovered are marine diamonds and more than 95% are gem quality. Funds raised in its listing on the Toronto stock exchange will enable Namco to expand its diamond sampling programmes off the Namibian coast and fund the design, development and construction of the next mining phase including further assessment of its Luderitz Bay discovery where samples have established a significant resource where full-scale mining started in 1997. Namco's 120-tons seabed crawling machine, called NamSSol, has gone into production and will be able to recover one million cubic metres of seabed material, mining 0.3-0.4 square kilometres, each year. The associated ship SS Kovambo, was fitted with a 50-tons per hour processing plant with an annual full production target of 150,000 carats. Namco has recovered its first diamonds from the Koichab Prospect in the Luderitz Bay Concession using the NamSSol mining system with at least 95 percent of diamonds recovered of gem quality. Namco is planning to invest R100 million in a second mining system similar to the NamSSol seabed crawler which is well on its way to achieving its target recovery rate of 150,000 carats a year. The new machine would then double production to 300,000 carats a year. The NamSSol Two, weighing 120 tons will be built in Cape Town and it is predicted that it will have a production rate at least 20% better than NamSSol One. NamSSol Two will be completed by the third quarter of 1999 and will come into operation during the first quarter of 2000. Namco has also entered into an accord with the Namibian-based Arsan Mining, 50% owned by Russia's Almazy Rossil-Sakha, the world's second-largest diamond producer to investigate the feasibility of establishing a diamond cutting factory in Namibia. They are also discussing joint onshore diamond exploration. Namco has a three year marketing agreement with IDC Holdings, a private diamond industry company based in London and Antwerp. And here is NAMCO's LATEST QUARTER? AND THIS IS USING ONLY ONE MINING VESSEL?? "NAMIBIAN Minerals Corporation (Namco), the most recent entrant in the off-shore diamond mining industry (listed on Nasdaq and now also eyeing a JSE listing) last month rocked the local industry when it announced much better than expected half-year production figures topping 192 000 carats." Industry sources are taken aback by these figures. Namco only operates one mining vessel. "They must have concentrated on the juiciest spots with minimal overburden to have achieved these figures. They will now have to move into areas in which overburden can be as high as 12 metres, compared to the five metres they have been mining during the past months", says one observer who knows the lucrative Luderitz concession areas intimately. Namco's production shines favourably compared to industry leader De Beers Marine, which produces more than 500 000 carats a year using four mining vessels. Alastair Holberton, the chairman of Namco, says the annual production target has now been raised to 260 000 carats. It is no secret that he is boasting widely that the recovery of Namco's one vessel - the NamSSol 1 - is setting new standards for the marine diamond mining industry. The NamSSol 1 is being operated from Kovambo. It sends material sucked out of the seabed to the ship for filtration. Once the diamonds have been removed, the debris goes back to the seabed. The 120 ton robot digs a trench as it moves along the seabed. The suction head has a ripping tool so that the particularly hard bedrock can be cracked. It also has high-powered water jets to flush diamonds out of crevices and gullies in the seabed. The NamSSol's suction can exert a force of 50 tons on the seabed. The vehicle actually burrows down about five metres into the seabed. When first lowered, it digs a hole for itself and then moves slowly forward, leaving a trench behind to be filled with waste silt. The vehicle moves around on two huge tracks and is heavy enough to withstand ocean swells of up to six metres. It covers around 10 000 square metres a day, processing 50 tons of material an hour. The system has been fully automated so that, for securityreasons, diamonds are never touched by operators. The ship uses global positioning satellites (GPS) to put itself in the correct spot before lowering the NamSSol 150 metres to the seabed. Transponders on the crawler tell the mothership exactly where it is at all times, and live video and sonar links also help the operators in the ship control room. A small joystick is used to manoeuvre the NamSSol on the seabed. The system can only go to a depth of 300 metres because the force needed to move material from the bottom of the sea to the ship is huge. The crawler is supposed to run 20 hours a day and may operate for 10 years. It is well known in industry that the robot is often bogged down by technical problems (it is now again in Cape Town for repairs and maintenance). This makes the verified production figures that much more remarkable. If Namco's competitors were taken aback by its good figures, there are more ominous developments to come. Right now and right here in Cape Town the company is busy with a bigger and better NamSSol 2, which will more than double Namco's production. The R100 million plan is an upgraded version of the NamSSol 1 and should be completed towards the end of this year and should be producing early 2000. And here is the actual nine months results? Namibian Minerals Corporation Announces Strong Nine Month Results Namibian Minerals Corporation (Namco) (Nasdaq: NMCOF - news; TSE: NMR - news; Namibia: NMC), Africa's second largest marine diamond producer, today announced strong earnings for the nine months ended 30September 1999 attributed to the strength of its production, continued cost control and positive growth in the diamond market. Nine month highlights -- Earnings of US$16 million, US$0.42 per share on revenues of US$35 million -- Average sales price rose 7% to US$159 per carat -- Diamond production of 207,800 carats -- Acquisition of Ocean Diamond Mining Holdings Ltd. (ODM), Africa's third largest marine diamond producer -- Joint venture agreement with German engineering group Wirth to develop exploration technology for operation in 2000 Earnings for the nine months ended 30 September 1999 were US$16.0 million, US$0.42 per share, compared to a loss of US$4.0million, US$0.10 per share, for the nine months ended 31 August 1998. Revenues from the sale of 229 300 carats rose to US$34.4 million from US$4.8 million in the year earlier period. In the third quarter, sales of 78,100 carats generated revenues of US$12.4 million (1998: US$4.8 million) for an average sales price of US$159 per carat, an increase of 7% on the previous quarter's diamond price. Diamond production for the nine months was 207,800 carats. Namco's 1999 production target is 260,000 carats. Production for the third quarter at 15,700 carats was in line with expectation after the Company completed a port call in July and August for biennial classification of its mining vessel MV Kovambo, installation of an upgraded launch and recovery system and enhancements to the seabed crawler NamSSol's undercarriage and suction boom. Following a further two weeks of commissioning, NamSSol resumed full operation. The Company has cancelled its previously scheduled October port call and production should benefit from a full fourth quarter performance. Namco Chairman and CEO Alastair Holberton said: ``We enter the final quarter confident of doubling our 1998 production of 126,000 carats by year end. Our NamSSol technology has proved to be a major development for the marine diamond industry.' Operating cash flow for the nine months was US$20.6 million. This cashflow has been reinvested in capital items (US$7.3 million) including the enhancements to NamSSol and its launch and recovery system (US$4 million) and initial expenditure on Nam II, the Company's second marine diamond mining system (US$2.6 million). The Company also spent US$14 million from cashflow to acquire its 34% shareholding in ODM, Africa's third largest marinediamond producer. Diamond stocks at period end had a gross revenue value in excess of US$1 million. Subsequent to quarter end, Namco announced that its offer for ODM had successfully closed with ownership of 92% of ODM shares. ODM's assets include 20,000 sq. km. of marine diamond concessions, three mining vessels, US$10 million in cash and no debt. Namco's technological and operational expertise is expected to substantially boost current production levels (year ended 1999: 64,000 carats). Namco funded the offer through a mix of its own cash resources, debt and new equity. Subsequent to quarter end, the Company completed a private placement of 2.7 million shares to raise an additional US$11 million. Dilution will be less than 15% of the shares in issue at quarter end. Cash resources in the enlarged Group following the placement are in excess of US$20 million. Following assessment of exploration results in the Hottentot Bay Grant, Namco increased its total estimated resources to 2.9 million carats. This comprises 942,000 carats of measured resources, 484,000 carats of indicated resources and 1,537,000 carats of inferred resources*. Further exploration is planned for next year with the development of a US$1.5 million exploration tool, which is currently being built by Wirth of Germany, a pioneer in seabed drilling technology. J.A.Holberton Chairman & Chief Executive Officer And NAMCO just increased its reserves and mining licence: Namibian Minerals Corporation (Namco) (Nasdaq: NMCOF - news; Toronto: NMR - news; Namibian: NMC), Africa's second largest marine diamond producer, today announced the granting of its second Mining Licence and the award of international environmental ISO 14001 accreditation. Mining Licence 103A has been granted by the Namibian Mininstry of Mines and Energy for 15 years over 359 sq.km. of the Company's 526 sq.km. Hottentot Bay Grant (HBG). The new Licence covers 68% of HBG and is in addition to Namco's Mining Licence 51 which covers 136 sq.km. of the Luderitz Bay Grant. Namco's total estimated resources in HBG of 651 000 carats (measured resource estimates: 106 000 carats, indicated resource estimates: 165 000 carats, inferred resource estimates: 380 000 carats) are based on the results of the first phase of prospecting in the area. The currently defined resource areas represent less than 2% of the total area of HBG(1). Namco obtained all necessary regulatory approvals before it obtained its Mining Licences. On granting the new Mining Licence, Namibia's Minister of Mines and Energy, The Hon. Jesaya Nyamu, MP praised Namco for its advanced technology and for ``its good track record and commitment to the development of the Namibian economy'. Namco also announced today that it has been awarded ISO 14001 accreditation -- the first certification for a Namibian registered mining company. SUMMARY: We are giving Nambian Minerals [NMCOF-5.94] recommendation a "Buy" rating. We are still reviewing financial data that may make it possible to upgrade to a "Strong Buy." But given the current earnings, the increased reservesm the second mining vessel now producing and the technology that is very obviously working, we are suggesting that NAMCO be included in risk-oriented portfolios. Please remember that this is Nambia?not Los Gatos, California and although we believe the government to be quite stable and the relations with NAMCO quite favorable, we still make the obvious caution. Our price objective is certainly double digits and that those double digits upon a successful test of the high can be in the teens given the two ships that are working and the stability of diamond prices that have firmed. Thanks to N. Anderson in Naples, FL for research materials. Axxel Knutson, EVP & Director of Research www.tradingweapon.com A premium investor service of Platinum Equities, Inc. New York City DISCLAIMER Investment decisions should not be based solely on our proprietary indicators, which are intended as an adjunct to your additional analysis. Please accept these comments as market commentary. We do not intend these comments to replace detailed fundamental analysis. We urge you to accomplish that additional research via your contacts on the Internet or through a trusted financial advisor. If you want additional information, we will give it upon your request. This report has been prepared from original sources and company data we believe to be reliable, but we make no representation as to its accuracy or completeness. Additional information is available upon request. This report is published solely for information purposes. It is not to be construed either as an offer to buy or sell or the solicitation of an offer to buy or sell any security or the provision of or an offer to provide investment services in any state where such an offer, solicitation or provision would be illegal. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice and we may not update that change to you. Platinum Equities, Inc., its affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold, or sell a position in the securities mentioned herein. The author of this report, Axxel Knutson, does not invest in any of the securities mentioned in this report nor does his immediate family unless such securities are included in mutual funds or index options. Equity investment involves risk of capital loss. We recommend that your portfolio be diversified by company size, industry group, geographic region and by currency. It should not be assumed that future selections will be profitable or will equal the performance of past selections. Securities listed herein illustrate selections made using proprietary indicators know as VTAR? [Volume Trade Analysis Research?]. These names, VTAR?, Trading Engine?, tradingengine.com?, Volume Trade Analysis Research?, are servicemarks/trademarks of AXXel Knutson and are given under revocable license to Platinum Equities, Inc. ¸ 1999, All rights reserved, Axxel Knutson and Platinum Equities, Inc. Diversify. Got it? All recommendations and commentary are directed toward sophisticated, aggressive traders who have significant experience trading in a volatile market and who possess the financial resources to risk a loss of some or all of their invested funds. Commissions, and if you use margin, interest charges will lessen any return on investment. VTAR [Volume Trade Analysis Research] centers around the proprietary analysis of trading volume, price, general fundamental analysis, beta concerns, group rotation and detailed analysis of risk as it relates to entry and exit points in highly liquid stocks. Control the risk?the profits will take care of themselves? AXXel Knutson | ||||||||||||
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