"The most beautiful country I’ve ever visited," is how Isabel’s other half described Lesotho on a visit there a few years ago. Landlocked by South Africa, the kingdom of Lesotho, is most certainly very beautiful. But beauty is not the only attribute of this mountainous country which gained independence from Britain in 1966. The other glittering asset is its reserves of large, high quality diamonds that come mostly from alluvial deposits.
The "Lesotho Promise", the biggest diamond discovery in 13 years and the fifteenth largest ever, was found here. Bigger than a golf ball, this is some gem! A whopping 603 carats with the top colour grading for a stone, this rock was sold for $12million at auction in Antwerp. It is expected to fetch in excess of $20million once it has been cut and polished.
Lesotho holds a lot more promise!
The "Lesotho Promise" was discovered last year at Lesotho’s Letseng mine. This is jointly owned by the Gem Diamond Mining Company of Africa and the government.
First mined by De Beers between 1977 and 1982, Letseng produced some 289,000 sparkling carats. The mine was then closed until 2004 and is now producing again though admittedly on a modest scale.
But there is more to Lesotho than Letseng. High in the Maluti mountains, some 2600 metres above sea level, there are other significantly mineralised kimberlites - the Liqhobong and the Kao pipes.
In 2000, a feasibility study was completed on Liqhobong that showed an indicated resource of 1.4 million tons of ore at a grade of 69 carats per 100 tons. Meanwhile, Kao is said to have resources of 185m tons grading 6.83 carats per 100 ton to a depth of 600m.
Little wonder then that Lesotho is enjoying a bit of a diamond mining revival. And the good news for investors is that the Government is considered progressive, even friendly. It has made a number of concessions for miners. Capital items used for mine evaluation and construction are exempt from sales tax. Plus there are certain exemptions on withholding taxes on interest payments and dividends. Ok, so there is an 8% royalty requirement on diamond sales and the government expects a 12.5% free-carried interest in any mining project. But, all things being equal, it is a pretty nice place to do business.
Glittering promise or pipe dream?
What we want to look at a bit more is the Kao Diamond Project. Until recently known as the Lesotho Diamond Corporation, this little known Gibraltar-registered private company owns 93% of Kao. In September though, it changed its name to Global Diamond Resources (GDR). The name change, said Chairman Morven Hay, showed the company’s willingness to grasp new opportunities outside of Lesotho.
But Kao, and indeed Lesotho, remains critical to GDR’s strategy going forward. The plan is to develop into a world class diamond miner by 2012. By then Mr Hay reckons they’ll be producing one million carats a year with gross profits of £80m. Also on the cards is a listing or possibly a trade sale or merger. That’s expected towards the end of next year, after the bankable feasibility study (BFS) at Kao has been completed.
Final planning for the BFS has been agreed by consultants SRK (UK) Ltd. And if you need to hear a big name, Rio Tinto has agreed to be one of the diamond evaluation consultants for the project.
Now, GDR was given this mining concession for Kao in August last year. As mentioned, Kao is said to have resources of 185m tonnes grading 6.83 carats per hundred ton. If you calculate the diamond price at US$240/carat, (which the company reckons is very, very, conservative), then the Kao deposit is worth a tidy US$3.2bn.
In Phase 3 of this project, which is of course subject to the BFS, annual diamond production at Kao is expected to jump to 740,000 carats to generate revenues of US$157m. And that’s excluding large stones! That would make Kao one of the biggest diamond mines in the world. Better still, it has an anticipated mine life of 30 years!
But dubious management a bit of a worry
Sounds like a glittering future right? Well, there is one slight problem. And that is that one of the major shareholders has a rather notorious track record. The name is Bond. Alan Bond! The Ealing-born Mr Bond spent three years in an Australian prison for what is described as the country’s "biggest corporate fraud". He owns 38% in the company through various family trusts. Chairman Hay happens to be Mr Bond’s former banker! And his son Craig sits on the board. Sounds very incestuous! This, say some traders, is putting investors off.
That apparently led some of GDR’s shareholders, including geologists and former management, to approach mid-tier AIM-listed Pangea Diamond Fields. The rumour goes that they hoped Pangea would make a successful bid for GDR (then LDC) thus reducing Bond’s influence. Pangea did indeed make a bid for 40% of the company. But they did not pull it off.
In April this year, however, AIM-listed River Diamonds, which has interests in Brazil and Sierra Leone, had more success. Probably because it was willing to settle for a 4.8% stake for £4m with an option to buy a further 2.3% by April next year!
So, with a listing on the cards and other diamond companies showing a real interest in this newly named company, GDR looks intriguing. If for no other reason than to see what the aptly named Mr Bond does next.
Keep digging,
Erin and Isabel
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