Rough prices buoy Australia’s second diamond miner

Perth, Western Australia — The rise in the stock price of Australian-listed Kimberley Diamond in mid-April reflected the premise that, if grade is king for base and precious metals and for bulk-tonnage mines, then, for a relatively new diamond miner, a sharp appreciation in the price of rough diamonds can do wonders for the bottom line.

Kimberley Diamond (KD) has been through flat beer and champagne days in the past six months.

An Australian market still holding reservations on how a junior could make a dollar wiped out a third of the company’s market capitalization when some analysts saw lower short-term production aspirations, compared with ones given at the Diggers & Dealers conference in Kalgoorlie last year.

The misreading had a lot to do with KD’s toning down its mill development timetables for its two lamproite production pipes at the Ellendale field in Western Australia’s West Kimberleys. While Executive Chairman Miles Kennedy and his team have been able to quell the fires of doubt, the share price recovery was slow.

However, several announcements in mid-April put some fire back into the bellies of Australian diamond-share investors. The most notable driver was the revelation that the 32nd diamond sale for Ellendale roughs realized a record average price for run-of-mine production of US$328.94 per carat, representing a 56% increase in the average realized price of US$211 per carat for the six months ending Dec. 31, 2004.

This latest sale of 9,419 carats realized A$4 million.

Ellendale is noted for its pretty yellows, and recent increases in price will be adrenalin for diamond-seekers in far-northern Australia.

All commercial production to date has come from Ellendale Pipe 9 (E9). However, the company’s quarterly report for January- February-March shows an impressive start from Ellendale 4 (E4), where the first production block produced 6,567 diamonds at a grade of 0.43 carat per tonne. The regolith resource grade KD had been working on was 0.117 carat per tonne from this pipe, which was started second on the basis that E9 had stones of higher value.

Kennedy said initial production showed that the first production tranche averaged 0.21 carat per tonne, compared with an earlier determination that E4 material would average 0.12 carat per tonne, which formed the basis of a development study late last year.

Diamond sales for the quarter represented a 57% increase over the December quarter and were valued at A$7.9 million. The sale of 78,476 carats for the nine months generated a value of A$25.3 million.

The production button will be pressed harder in the next two years. KD is establishing a separate plant at E4, which is 16 km south of E9, as part of a A$48-million expansion of Ellendale’s infrastructure.

This expansion is to be completed next April, the objective being to lift Ellendale’s total annual milling capacity to 7.2 million tonnes from 2.8 million tonnes. Commensurately, annual production would rise to 700,000 carats from the current 120,000 carats. The expansion will be supported by a A$48-million project funding facility from Socit Gnrale group.

The Ellendale lamproite field was the first major diamond discovery in the 1970s. Early testing showed it to be sub-economic, particularly considering the diamond prices of that era.

Later, consortium partner Rio Tinto (RTP-N) took total control but focused on the world’s biggest diamond mine, Argyle, in the North Kimberleys.

About four years ago, Rio Tinto was found not to have complied with retention lease conditions. KD successfully plainted but was knocked over by the discretionary power Western Australia had given its mines ministers.

So KD, then a junior with scant funds, took the challenge to the Australian High Court and Rio Tinto relented, selling out.

The doubters who saw limitations for commercial diamonds outside of Argyle initially poured scorn on KD. But the company, early in its evaluation, found an enrichment zone in the upper area of the pipes that had not been read well by the earlier evaluators. Some of this stockpiled area was lost over a virtual hiatus of about 20 years.

Some “Kimberley-ites” say there are diamond-studded roadways in the district, as the local council used a large part of the stockpiles as road ballast.

KD had for several years chased the source of diamonds in paleo-channels from Blina and pursued the source for the Terrace 5 diamonds that came out of that ancient river system.

After consolidating joint ventures around the Ellendale mining lease, KD set up a new float named Blina Diamonds to undertake regional exploration, including new pipes unearthed by KD.

— The author is a freelance writer based in Perth, Western Australia.