After paying a visit to Namibia to view the country’s offshore diamond mining operations, analyst Roger Chaplin of T. Hoare Canaccord returned with good things to say about the growth prospects of one of the major players,
In a recent research report, the analyst summed up the company’s long-term future by quoting Chairman Alastair Holberton: “Namco’s strategic objective is to become the world’s most profitable ocean diamond miner.”
Chaplin believes this goal is achievable. Namco is expected to produce 400,000 carats of diamonds this year (up from 273,700 carats in 1999), and 600,000 carats in 2001 with the addition of a second marine mining system. The company currently sells its diamonds for an average of about US$158 per carat.
Chaplin says he has no doubt that the company will add a third mining system, which will boost total diamond production to more than 900,000 carats in 2003. “This level will then likely be beating the volume of production from De Beers’ offshore operations, carried out through Namdeb/DebsMarine,” he adds.
Having the potential to be Namibia’s top offshore miner is no small achievement, given the formidable competition. Accordingly, Chaplin changed his recommendation from buy to “accumulate.” A target price of US$7.50 was set, which, though below the peak of US$8, is still above the current price of about US$6.50. Namco has 45.7 million shares outstanding.
Namco’s success owes much to its marine mining technology, namely the NamSSol system, which is capable of recovering more than 95% of the estimated diamond reserves in a systematic manner. This recovery rate is well above that achieved by the old fashioned air-lift system.
NamSSol uses a crawler on the seabed that acts as a stable platform for the mining equipment, which consists of dredge pumps, with powerful side-jets to help break up the conglomerated material on the seabed. It is launched from the vessel MV Kovambo.
A newer, larger system, dubbed Nam 2, is being built in Cape Town, South Africa. It will have twin rotary cutting heads on either side of the air-lift pipe, which will give more power when needed.
“The whole system is designed to be able to mine in relatively rugged terrain,” Chaplin notes. “The mining method is planned to allow for a first pass going forward using the cutting heads, then a ‘clean-up’ pass coming back, with the cutting heads retracted.”
The analyst describes the level of computerization technology as impressive. Nam 2 is expected to be completed in April or May, and is scheduled to be commissioned this summer on board the new ship MV Toiva. The payback period for Nam 2 is expected to be about 18 months.
Namco also has mining systems obtained as part of recent takeover of Ocean Diamond Mining (ODM). That company used three ships with on-board plants to clean 250 sq. metres per day, with 40-50% recovery, compared with Namco’s one ship, which cleans 1,000 sq. metres, with 95% or better recoveries.
Chaplin says the ODM takeover gave Namco more than just additional mining equipment, namely 20,000 sq. km of concessions covering most of offshore Namibia. This boosted Namco’s overall concession area to 27,000 sq. km. The acquisition also provide 1 million carats of diamond resources, boosting Namco’s total reserves and resources to 3.7 million carats.
Since taking over ODM’s operations, Namco has implemented a number of improvements that will eventually allow these vessels to produce up to 150,000 carats per year — more than double the current rate.
On the reserve/resource front, Chaplin notes that existing calculations do not reflect the full potential of Namco’s concession areas. “The areas involved are just too vast to be sampled in a short time.”
Namibia’s overall diamond potential is significant. Over the past 90 years, an estimated 100 million carats of diamonds have been mined from six or eight ancient beaches, which are now on shore in Namibia. In the past 20 years, the offshore diamond operations have yielded just 5.5 million carats.
“This appears to be simply scratching the surface,” Chaplin says, after noting that there are about 19-21 sunken beaches off Namibia’s present coastline, all of which will have trapped diamonds. “Clearly, there is considerable room for more diamonds to be recovered from offshore in the future.”
Namco reported net income of US$17.1 million on revenue of US$43.1 million last year, up from net earnings of US$3.1 million on revenue of US$13.1 million for a 7-month period ended Dec. 31, 1998.
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