Kimberley Consolidated Mining (KCM), a junior diamond miner, explorer and developer made a sparkling appearance. Its share price soared by 11% as it listed on Johannesburg’s alternative exchange (AltX).

For South Africa it’s – what commodities boom?

Still, the economic outlook remains gloomy in the southern hemisphere.

According to Statistics SA, South Africa has “seriously missed the commodities boom”. It reckons the mining sector’s contribution to first quarter GDP plummeted some 22%.

Of course everyone expected the mining sector to shrink what with the power crisis, not to mention safety issues and violence against migrant workers. But even economists didn’t think it would be that bad. Most predicted a 10% fall.

Gold, platinum and diamond producers – South Africa’s worst performers – are to blame. They’ve not been producing enough precious material!

Platinum production was down 15% in the first quarter year-on-year… gold was down 19% and diamonds 18%. This was a major reason for South Africa’s economy growing just 2.1% versus 5.3% in the previous quarter.

So, South African miners are trapped in a recession in the middle of a commodities boom. Most lay the blame for this at the door of Eskom, the state electricity supplier. But other reasons are beginning to emerge…

The reserve bank’s efforts are one — it’s trying keep inflation between 3% and 6% at a time when the oil price is going through the roof. This means the bank was forced to hike interest rates to keep inflation within its target. Propping up the currency is another move that has caused many miners to move their production boosts — they’ve gone offshore!

Then there are the new mining regulations. While they came into force as long ago as May 2004, they’ve taken some time to implement. And, of course, new royalty payments came into affect this year. This was the subject of heated debate between the mining industry and the government.

Now, it looks like things are about to get worse…

Electricity supplies may have been stabilised, but winter is on its way. Domestic consumption is expected to rise. More stress on the system does not bode well for its major mining users.

Still, there are gems down there…

You can’t blame South African miners for downing their tools and investors for making for the exit!

But the little newcomer shows that there are still gems in there.

In spite of fears about prospects in South Africa, KCM still managed to arouse a lot of interest when it listed on the JSE’s AltX. Even as Statistics SA announced the mining sector’s demise, the first day’s trade in KCM saw its share price soar.

So what has KCM got going for it?

CEO Hein Le Riche reckons there is massive demand for high quality gem diamonds. And there is a lot of promise in KCM’s prospects. The company’s two main mines (Bo-Karoo and Taung) are on the Orange River. This territory is famous for large high value gemstones.

Mining at Bo-Karoo kicked off in mid-2005. Between then and now the mine has produced an average of 250 carats a month. For the year ending 2009, the mine is forecast to produce 4,840 carats, rising to 6,000 the following year.Bo-Karoo has “indicated” diamond resources and more certain “probable” diamond reserves of 25,490 carats.

Already the mine has produced some significant white and coloured sparklers – a 98 carat stone in 2006 and a 123 carat stone in 2007. The latter went for $22,000/carat. Then in April this year a 46 carat blue-white stone sold for an impressive $28,000/carat.

At its other alluvial mine, Taung, 3657 carats of diamond have sold for an average of US$751/carat. Better still, 90% of these diamonds are of gem quality and 40% are bigger than one carat stones. A 42 carat Cape yellow diamond from Taung sold for US$918 per carat.

Then there is The Carter Block in the Northern Cape Province near to one of De Beers mines. Here there are known kimberlite pipes – the other type of diamond mining that takes the form of an open pit. There are also alluvial deposits.

KCM has entered a joint venture on this with JSE listed Trans Hex, a company that has kimberlite mining expertise. While this mine is still in the exploration phase, prospects have been judged good enough to begin bulk sampling.

Exploration is also underway at Batloung, another area in the Northern Cape where KCM holds mining rights.

The company may raise capital to fund the development of these Kimberlite prospects particularly the one at Carter.

…and prices are rising for its gems, not just KCM shares

All in all, it sounds as though Mr Le Riche’s confidence is justified.

In two years KCM and its subsidiaries produced more than 12,000 carats. These, he said, sold for more than R120m (just under £8m). In February alone Bo-Karoo and Taung produced more a 1000 carats. These brought a gross income of more than R10m.

Since 2005, KCM has sold diamonds worth R150m. Come February 2009 the company expects to generate an annual R91m in sales. It has already achieved a third of that this year!

Even KCM has underestimated the buoyancy of diamond prices. In its pre-listing statement it said average prices would be around $1900/carat, but that has already shot to $2400/carat.

And Mr Le Riche reckons demand is strong enough to push prices higher still. That means KCM is not limiting itself to South Africa. It has plans to enter Sierra Leone, Angola and Lesotho, too.

One word of warning though! Diamond stocks have been the worst performing of resource stocks.

Still, KCM is already ahead of its revenue targets for this financial year by 30%. It has profits of R4.5m forecast for February 2009. By the end of 2010, the company is forecasting profits of R30,5m.

Even better news! It is talking of paying dividends to shareholders. That would make it the first AltX mining company to do so. And it could send the share price higher!

So, if all goes to plan, this one could be just be a glimmer of light in the South Africa’s darkness.

Keep exploring,

Erin and Isabel

By Erin Hamilton and Isabel Turner,
First published on Wednesday, June 04, 2008

Source: Junior Diamond Miner And Explorer KCM Makes A Sparkling Appearance

Sad too is probably how early stage explorers are feeling in these uncertain times. Raising capital for new projects has become increasingly difficult. Funding from traditional investment sources has all but dried up.

Take London’s Alternative Investment Market (AIM). It is increasingly reluctant to list companies in the early stages of exploration. Miners coming to AIM today tend to be producing, or at the very least close to producing.

That is the golden rule we tend to apply too! But we also recognise that exploration is important. After all, minerals are in short supply and in spite of US slowdown, the commodities bulls reckon demand from Asian economies will rise and rise!

So while producers, or near-producers, are certainly preferable, we’d be crazy to write off all explorers. They might be risky but there is always a chance that they will deliver. Even if share prices have taken a hammering!

African Eagle… soaring to production

In spite of a disappointing slump in the share price since August (it is not alone here!), London and now Johannesburg-quoted African Eagle Resources might be one of those.

African Eagle is a copper, gold and now uranium explorer with interests in Zambia, Tanzania and Mozambique – all countries with relatively stable political and economic regimes and good infrastructure.

Better still, a successful secondary listing on Johannesburg’s Alternative Exchange (AltX) last year means African Eagle’s exploration projects are fully funded for 2008 and 2009. And the plan is to fast track the two most advanced of those to production sooner rather than later.

Continues below

Recommended

Around $135 billion in oil is waiting to be shipped from a small African country.

A grossly undervalued company with a share price of just pennies has total control over it’s departure.

America and China will have to pay them some serious money before they let a single drop depart…

Own this company now before their share price reflects what they’re actually worth…

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you
can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

Other projects in a relatively advanced state are the Ndola and Mokambo Copper projects in Zambia. Also in Zambia is the Sasara Eagle Eye copper-gold project… It holds a large iron-oxide-copper-gold system as well as uranium rich mineralised targets.

But for the moment, Mkushi and Miyabi look most promising. Production is expected within three to five years. And from our precious metals vantage point, there is plenty of shine on Miyabi!

Randgold takes a shine to African Eagle

Here is why. First of all Miyabi is located in Tanzania in East Africa, where mining is considered to be a key foreign exchange earner and growth sector. Over the past ten years there have been substantial economic and structural reforms here. The result is that Tanzania is now the third biggest gold producer in Africa, with more than 50m ounces of gold reserves and resources. Fair play to them!

Miyabi, a gold bearing corridor of 7km by 2km, is African Eagle’s most advanced gold project. Drilling in this area has to date defined a JORC-compliant resource of 520,000oz of gold. (For the record, JORC is a professional code that is now widely accepted for reporting resources and reserves.)

More reassurance comes from the fact that London and Nasdaq-listed Randgold Resources, one of our favourite junior gold companies, has been involved in the drilling process.

Randgold and African Eagle have entered a joint venture whereby Randgold not only funds but also carries out the pre-feasibility study. So Randgold obviously wants to get it right. Because getting it right means that it could earn a 50% interest in the project.

African Eagle then has the option to co-fund a full feasibility study or dilute its interest to 35% if Randgold funds the full study. So there is everything to play for.

Clearly Randgold brings its drilling expertise to the project. It recently completed 4068m diamond drill programme across the Miyabi Structural Corridor. Why? To better understand the geology and mineralisation of the area.

After all, African Eagle has pointed out that the area, covering just over 500 km², has only been part drilled. And it seems pretty confident that it can expand that resource to 1m oz.

…and TWP Finance gets in on the act too

Now African Eagle’s strategy is clearly one of finding partners with skills and experience, financial support or local knowledge.

But more recently it sold a 4.48% stake to TWP Finance, a subsidiary of consultant engineers TWP Holdings.

TWP has made it quite clear that it intends to up that to a “strategic stake” in African Eagle. Now, TWP Finance positions itself as company that trades mining skills and intellectual property for sweat equity or mineral rights. A company that is committed to “becoming increasingly involved in early stage exploration projects around the globe,” says TWP Finance’s chief exec Dean Cunningham.

It is a risky strategy but one TWP reckons is worth taking. Explorers are finding it increasingly difficult to find capital. But the world says Mr Cunningham needs “these new projects to supply the current commodity and resources boom”.

So TWP brings its small team of financial and mining experts to a project in return for shares. Then it brings its skills base to the party and helps to fast-track key projects.

Risky but potentially rewarding? African Eagle may just be a takeover target for bigger players. At last look the share price was trading at around 8p a share.

Management can’t say loudly enough that it is undervalued.

Neither can Mr Cunningham, who reckons “African Eagle shares are an attractive prospect at present, as they are relatively undervalued despite the high metals prices in the extended commodity cycle”.

Spin if ever I heard it, says Erin. But even she has a twinkle in her eye.

Keep mining,

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.