INVESTMENT COMMENTARY — Namco gets nod for successful marine diamond mining

With production results exceeding expectations and profits rolling in from the sale of top-quality gemstones, mining analysts are taking renewed interest in Namibian Minerals (NMR-T).

Using new underwater mining technology based on a crawler system, the company has made a name for itself as a profitable miner of alluvial diamonds off the coast of Namibia.

Mining analyst Roger Chaplin of T. Hoare Canaccord is among those impressed with the company’s technology and production results.

“Whilst abundant diamond resources are known to exist on the ocean floor off the west coast of South Africa/Namibia, mining them has historically been a hit-and-miss business,” he notes in a research report. “Namco’s new technology gives excellent and consistent results.”

Namco’s technology, known as NamSSol, uses a remote-controlled, crawler-based mining tool on the seabed. The device has the ability to break through hard overburden and mine the most profitable areas with considerable precision.

The company began mining in April 1998 and reached its goal of producing 150,000 carats of diamonds per year.

Chaplin expects the company’s production to grow from around 260,000 carats this year to 745,000 carats by 2003. “This will make Namco as big as De Beers in marine diamond mining.” Namco is currently the world’s second-largest marine diamond producer.

The current resource is estimated at 3 million carats of diamonds, enough for mining to continue for at least 10 years. However, this represents less than 5% of the company’s existing 6,800 sq. km of offshore concessions, and many targets remain unexplored.

Not content with its own holdings, Namco recently bought a 34.6% stake in Ocean Diamond Mining Holdings, an established offshore diamond miner in southern Africa. It is also bidding for the balance of the company in order to combine their respective concessions and fleets of ships.

For the first six months of 1999, Namco reported net income of US$10 million on revenue of US$22 million; it even paid a maiden dividend of US2 cents for the period. Chaplin expects total earnings for the year to come in at around US$17.8 million (or US46 cents per share).

Namco has 40 million shares outstanding and has been trading at US$4.75 in a 52-week range of US$6.44 and $1. Chaplin thinks it’s worth much more and recently issued a buy recommendation.

“We calculate a fair value for Namco’s operations of US$6.95 per share,” he concludes. “The stake in ODM is worth a further US50 cents per share, giving a total value of more than US$7 per share.”