Using a proprietary technique,
Since early 1998, Namco has cranked out more than 318,170 carats from its Luderitz Bay grant, propelling it to second place, next to
Earnings soared to US$10.6 million (28 cents per share) in the first six months of this year, following US$3.1 million (8 cents per share) earned in the final seven months of 1998. By comparison, the company lost US$5 million in the first six months ended May 31, 1998. (Namco has switched its reporting period to Dec. 31.)
Revenue likewise jumped, to US$22 million from US$13.2 million in the final 1998 period. The recent 6-month period includes a full month’s loss of production for exploration and a port call.
A total of 192,100 carats was produced in the first half of 1999, prompting the company to up its year-end target to 260,000 carats. Of that, 151,200 carats were sold at an average of US$146 each, and a separate 71,400-carat parcel sold at the end of the period is expected to fetch in excess of US$10 million.
Operating costs, including royalties and marketing costs, averaged US$51 per carat.
Such success has pricked the ears of investors, enabling the company to raise US$41 million in debt-financing and irrevocable undertakings. Previously, in June 1996, investors had instilled $17 million in the company, followed by another $20.8 million a year later.
Namco attributes its newfound success to the NamSSol mining system, a proprietary technique developed over the past several years for US$25 million and with the aid of companies experienced in unique oceanic operations.
“We went into the ocean not as a land-based mining company with preconceived ideas as to how things are done, but as a dredging company,” says Alastair Holberton, Namco’s founder and current chairman. “And we put a dredge pump on the ocean floor, next to the face, and saw a tremendous increase in energy productivity.
“For example, our dredge pumps are delivering twenty-two per cent solids [relative to water volume], whereas the airlift method used by others recovers only three to six per cent. So we are very energy-efficient.”
At 140 tonnes, NamSSol holds the distinction of being the largest track-mounted submersible ever dropped on the ocean floor. And unlike the airlift method, in which air is forced from surface to create a vacuum, mining and suction are controlled right at the source.
NamSSol crawls along the ocean floor, dredging and inhaling 1,000 sq. metres of sediments daily, or three times that of other systems currently in use. Layers 6 metres thick present few problems, with a hydraulically jointed suction boom providing flexibility while both a flushing device and ripping tooth pick clean crevices and hardened sediments.
Mined material is pumped up to a support vessel via a buoyant flexible riser and is then treated onboard in a 50-tonne-per-hour dense media plant. All operations are controlled remotely from the ship, which operates on a 4-point mooring system to allow 16 sq. km to be mined per anchor.
Underscoring its advantages, Holberton says NamSSol cuts a 14-metre-wide trench in one sweep while recovering 95%-plus of the contained diamonds. As well, operations are possible in 85% of sea conditions, in water as deep as 150 metres and in sea swells up to 6 metres high.
Hottentot Bay
Namco’s exploration is as successful as its production, as is evidenced by a recent three-fold increase in resources at its Hottentot Bay grant, also in Namibia. The update follows a bulk-sampling program completed earlier this year by NamSSol.
The 3-week program saw 10 trenches dug in the Saddle Hill prospect to confirm and upgrade previous results. Trenches averaged 13 metres in width and 80 metres in length, with bulk samples taken every 10 metres in each.
A total of 9,083 diamonds weighing 2,548 carats was recovered, with grades varying from 0.1 to 1.81 carats per square metre. Similar to Luderitz Bay, about 95% of the diamonds were gem quality, and, overall, they averaged 0.28 carat in size.
Measured and indicated resources now stand at 271,000 carats, with another 380,000 carats classified as inferred. Combined, these bring to 2.96 million carats Namibian’s total resources at the Hottentot Bay and Luderitz Bay grants.
Marine & Coastal Geo-Consultants, an independent consulting firm that has assisted the company from its start in 1992, recalculated the resources. All resources are based on a cutoff grade of 0.1 carat per metre.
Based on the exploration results, Namco is seeking a mining licence for the Saddle Hill prospect. At present, Luderitz Bay is the only concession licensed for mining.
The results have also prompted the company to develop a self-contained drill rig to take over exploration. The 47-ton machine, scheduled for completion in mid-2000, will combine conventional offshore drilling techniques with NamSSol technology and is expected to chop US$7 million from the company’s annual exploration expense.
“The Namrod [predecessor to NamSSol] ended up costing us US$17,000 per 10-sq.-metre sample,” notes Holberton. “We anticipate the new tool can clear a sample half that size, which we believe is sufficient, for US$125.”
Namibian Inner Shelf
Despite the progress, Namco management has no intention of sitting back and resting on its laurels. A takeover attempt was recently announced for fellow miner Ocean Diamond Mining (ODM), which is the third-largest producer of marine diamonds. The proposed merger would quadruple Namibian’s 6,600 sq. km of concessions in Namibia and South Africa.
“The logic behind the move is simple: we get 25% of the Namibian Inner Shelf when [6,000 sq. km of] ODM’s total holdings are combined with our own,” says Holberton. “And we think that is prime diamond real estate.”
ODM, listed on the Johannesburg Stock Exchange, holds 20,078 sq. km of marine concessions in Namibia and South Africa. As with Namco, mining activities are restricted to the former country on ground covering what is known as the Namibian Inner Shelf. Holberton says this area is believed to offset historic on-land production of 20 million carats of gem-quality diamonds.
Namco already owns a 33.5% interest in ODM, which it acquired in June, when Holberton and another executive join the company’s board. It also acquired an option for another 17%, the exercising of which triggered the recent offer, as South African law requires companies do so after acquiring 35% of the outstanding shares.
The offer includes 50% in cash and 50% in Namibian shares priced at US$4 each. Alternatively, shareholders can elect for an all-cash offer of 8.25 rand per share, which pegs ODM’s total value at US$63 million.
Investec Bank is acting as the company’s financial advisor and has agreed to provide US$25 million in secured debt financing. The remaining US$16 million will come from institutional investors. About 5.4 million shares have been reserved for the offer, of which 1.4 million will be sold in a separate private placement to provide US$5 million for working capital.
Aside from its concessions, ODM has three mining vessels equipped with airlift mining systems. In the fiscal year ended March 31, those vessels recovered 63,074 carats (sold at US$175 per carat), and they are expected to produce 80,000 carats in the current period. Reserves in Namibia currently stand at 424,000 carats, and measured resources, at 97,000 carats.
“The attraction is consolidating [the Inner Shelf concessions] into a single holding and then applying the NamSSol technology,” says Holberton. “So, we see the potential for significantly increasing output in the years ahead.”
The deal is still subject to regulatory approval. Another
stumbling block could be South African-listed Trans Hex Group, which holds a 33% stake in ODM and which itself attempted a merger in June. The attempt failed, however, as regulations require approval by 75% of shareholders present at the vote.
“Trans Hex and ODM’s management had agreed on a merger and went through all the motions,” explains Niel Hoogenhout, a director of both Trans Hex and ODM. “Two days before the vote, however, it became evident that someone had amassed enough ODM shares to ensure its failure.”
Hoogenhout adds that regulations forbade the company from acquiring any additional shares after announcing a merger proposal and that the investor subsequently sold his shares to Namco, giving both companies an equal stake. The investor subsequently bought another 17% of ODM shares and optioned them to Namco, leading to the current bid.
“[Once we receive the documentation], we’ll decide on whether or not to take the offer,” says Hoogenhout. “However, if you look at how the shares have traded, I think the offer is on the low side, but that’s just my personal view. In the end, we sit with a big block and have to decide what to do with it . . . and we won’t make a final decision until we know all the details.”
Should the merger fail, however, Namco has some insurance for future growth in the construction of a second, larger submersible that will be capable of clearing twice the area of its predecessor. Although bigger at 162 tonnes, it will cost US$12.5 million to run annually.
“Our whole focus is to improve the mining economics and lower the cutoff grade,” says Holberton. “So, it’s a jump forward in productivity for virtually the same cost.”
In the second quarter, the company invested US$12.6 million in the machine, other capital assets and the ODM shares. By quarter’s end, it still maintained US$6.2 million in cash.
At presstime, Namco was trading at $7.90 and had 39.5 million shares outstanding. A successful merger with ODM would see the company’s stock diluted by roughly 15%.
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