Thursday, January 12, 2012

Namakwa Diamonds 2012 production targets unchanged

Namakwa Diamonds, the London listed diamond miner which has producing mines in SA and Lesotho, has maintained its production guidance for the full year 2012.

Namakwa's 62.5% owned Kao kimberlite diamond project in Lesotho is expected to produce around 200,000 carats of diamonds during the financial year to end August 2012. In SA, its North West Province alluvial mines are expected to produce 20,000 carats in the 2012 year.

Releasing its interim management statement for the period September 1 to November 30, 2011 on Thursday, Namakwa noted that 6,478 carats were produced at the SA mines during the period, in line with budget for the rationalised project area, and 5,408 carats were sold at an average price of US$627/ct. This included 11 special diamonds of more than 10.8 carats.

Following the period end, a 37.46ct diamond was discovered on the company's operations on the South East Node, which is expected to realise significant value during the January sales process.

During financial year 2011, the SA ops produced 38,092 carats.

In Lesotho, ramp-up to achieve nameplate capacity and Phase 1 commercial production is underway at Kao, with cashflow-positive operations anticipated in the first quarter 2012. Initial production of around 3,900 carats is to be tendered in Johannesburg this month, with a total of 10 tenders planned for 2012.

Capital costs of US$66 million for the development of the mine have been 100% funded by Namakwa, with an additional $8 million to be spent during Q1 2012. All major capital projects, including the upgrading of the access roads, the first phase of the slimes containment facility, the freshwater weir, related site access roads and on-site accommodation for 450 people, have now been completed.

The freshwater dam is scheduled to be completed in late February. A new final diamond recovery area is also expected to be completed next month. In the meantime, the production team is using the final recovery area in the existing metallurgical testwork plant to process concentrate.

During the period Namakwa also restructured its North West Province alluvial mines and continuing operations achieved breakeven for the period before redundancy costs.

The 24/7 operating model, which required a three-shift mining team, was replaced with a two-shift mining team working 24 hours per day from 06:00 on Monday to 06:00 on Saturday with the remainder of the weekend used for maintenance. The workforce was reduced from 461 to 120 people and an additional contractor added to the wider project area.

Grade control and efficiencies continue to be a key focus, with operations suspended in several areas, the company said.

"We are pleased to report a positive set of results for Q1 FY2012 (first quarter of the full year 2012) following a difficult start to the financial year, with management executing on Namakwa's stated strategic goals to restructure the business," said CEO Richard Collocott.

"The company continues to provide a unique entry point for direct exposure to the Kao mine in Lesotho, a significant kimberlite resource on the world stage," he added.

The group's portfolio of alluvial mining and kimberlite exploration assets in the Democratic Republic of Congo were sold in September 2011 for a deferred consideration of US$6.25 million to be settled via a five year off-take agreement.

During the period, Namakwa entered into a US$40 million two year, secured term-loan with Jarvirne. US$25 million of the facility has been drawn to date and an additional US$6 million has been called to meet January 2012 capital and operational payments.

It is also making significant progress in reducing corporate costs from US$15.9 million in FY2011, to a target of US$9 million for FY2012, with further savings projected for future years.

It also successfully defended a claim made by Batla Minerals in Lesotho, with costs awarded to Namakwa. In November 2011, the High Court of Lesotho dismissed the claim of Batla Minerals SA and, its subsidiary, Toro Diamonds to a 50% interest in Namakwa's 62.5% shareholding in Storm Mountain Diamonds.

Batla has notified Namakwa of its intention to appeal the court's decision, with the appeal expected in April. Namakwa considers Batla Minerals' claim to be without merit and will continue to defend its rights vigorously, it said.

Looking ahead, Namakwa continues to rely on the available headroom of its US$40m facility with Jarvirne to meet outstanding capital payments in respect of the Kao mine and ongoing group costs.

Management is taking major steps to move the group towards profitability, with the generation of positive cashflow from the Kao mine expected in Q1 2012 and a significant reduction of corporate costs for FY2012, it said.

Shortly after noon SA time, Namakwa's share was quoted at 8 pence on the London Stock Exchange - up 1.64% or 0.13 pence.

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