For a company less than three years old, Kimberley Diamonds Ltd (ASX:KDL) has gained remarkable significance. Strategic acquisitions have won it an impressive portfolio including no less than half the world’s supply of rare Fancy Yellow diamonds. The Sydney-based company’s next move is into Botswana, with a diamond mine to re-commission and a potentially lucrative joint venture.
Noel Halgreen was appointed Kimberley Diamonds’ Managing Director in May this year, following “a lifetime” in the resources industry and a couple of years spent advising the company’s board. He describes his first few months of leading this fast-growing company as hectic but rewarding.
“It’s an exciting time in the relatively short life of the company, in the sense that there are a lot of things going on,” says Noel. “The company is pursuing its growth objectives aggressively.”
Kimberley’s mining portfolio includes the Ellendale diamond mine and Smoke Creek alluvial diamond project in Australia, as well as the Lerala diamond mine in Botswana. The company has reached a remarkably strong position in a surprisingly short period of time. Noel puts Kimberley’s early success down to a combination of company culture and people power.
“We started very entrepreneurially, building the company through a whole range of acquisitions over the last two years by identifying opportunities that were undervalued by the market at that time. We’ve also been able to add blue-sky upside to the company through gaining exploration potential,” he explains.
“The other part is, of course, the people. Despite the fact we’ve had some turnover of senior management, we have, even under those conditions, managed to build a strong, knowledgeable and excited team quickly. So the entrepreneurial culture of the company and its new and excited management team – I think those are Kimberley’s strongest points.”
Ellendale was Kimberley’s first acquisition, purchased from London-based mining company Gem Diamonds (LSE: GEM) in February 2013. As the source of 50% of the world’s Fancy Yellow diamonds, it presented a rare opportunity for this small new company to gain big exposure.
“Ellendale is a unique asset in producing these magnificent yellow diamonds; and one that created some unique opportunities within that specific asset,” says Noel. “Ellendale has a life-of-mine contract with Tiffany & Co., under which Tiffany takes all the yellow diamonds that meet its requirements for use in its Yellow Collection. That was possible because the Ellendale Mine was producing a range of yellow diamonds that were structurally consistent.” Kimberley sells commercial-quality diamonds produced at Ellendale through eDiamond Belgium, an online rough diamond trading platform that it acquired in July 2013.
Despite Ellendale’s many merits, Kimberley bought it in full knowledge that it was a mature asset. Although further resources are available in Ellendale’s E9 pit, mining of the resources currently economically recoverable ceased at the end of August 2014. With mining no longer continuing at the E9 pit, future diamonds could be recovered from its remaining 10-million-ton stockpile of course tailings, which could potentially yield diamonds for an estimated two and a half years’ more. The investigations into the economic recovery potential of these stockpiles are ongoing.
The Ellendale project also has another mine, the E4 pit, which is currently on care and maintenance. There’s potential for this to be restarted at some point, says Noel, dependent on white diamond prices in a few years’ time. “We will continue running Ellendale for as long as we can, and are focusing very hard on finding ways to extend its life,” he adds.
Knowing that Ellendale was insufficient to fulfil its ambitious growth plans, Kimberley set out to find a second, longer lasting source of diamonds. That’s where Botswana and the Lerala Diamond Mine came in.
From the beginning, Kimberley had wanted a project in Botswana – the “best diamond address in the world,” by Noel’s reckoning. “The geology is about as good an environment as you can find for diamond exploration, and it hosts some of the world’s largest diamond mines,” he says.
“It’s also a very stable country, and a really friendly environment in which to operate. I’ve always been impressed by just how helpful the government is in the development of mining projects. Furthermore, operating costs in Botswana are lower than in Australia. So the country’s been on our radar pretty much from day one and when we identified the opportunity at Lerala, we pursued it aggressively.”
The Lerala Diamond Mine, located in northeast Botswana about 34 kilometres from the South African border, has probable reserves of 8.38 million tonnes (mt) with an average grade of 29.68 carats per hundred tonnes (cpht). This sits within five diamond-bearing kimberlite pipes with a total surface area of 6.33 hectares. Yet despite these propitious figures, the mine’s two previous owners – DiamonEx and Mantle Diamonds Limited – both ran into difficulty in recovering the diamonds. Mantle had all the infrastructure in place – including a 230 tonnes per hour processing plant and recovery facility – but only managed to produce 73,403 carats before running out of money and putting the mine on care and maintenance in 2012.
Kimberley acquired Mantle Diamonds Limited in 2013, seeing no issue with the Lerala resource – only opportunities arising from capital management. “The resource has been modelled by a few independent parties and they’ve always come up with more or less the same numbers, so we’re very confident that the resource is there and the diamonds are there,” says Noel. “Using our own expertise and an independent consultant, we have worked our way through the whole plant to identify the areas that need improvement and these will be fixed during the re-commissioning.”
Acquiring a mine that has operated before provides the great advantage of having been built already. DiamonEx and Mantle invested US$31 million on Lerala’s infrastructure overall and Noel says that Kimberley was “really impressed” by the amount of infrastructure that was there. This significantly reduces Kimberley’s required capital expenditure on the mine, leaving only the cost of the improvements and re-commissioning – estimated at A$14.7 million (apx. US$13.3 million).
The project’s economics are further increased by current good demand and prices for diamonds. “The diamond market has visibly recovered from the lows it hit in 2007 and 2008; the growth we’re seeing seems stable, making it a really good time to commit to projects such as this,” Noel remarks.
“All the information coming out of the industry now points towards a gap opening up between supply and demand worldwide – so we knew that we needed to get this project into production as soon as we could.”
Kimberley announced that it would undertake a non-renounceable pro-rata rights issue offer in August to raise just under US$10 million with which to fund Lerala’s re-commissioning. The goal is to restart production at the mine between April and June next year, eventually ramping up to an average production rate of 357,000 carats per annum from 1.4 million tonnes of ore per annum.
Kimberley expects the resource to extend further than the currently estimated seven-year mine life, Noel explains, but this would require further exploration within the next two years. “At this point we’re looking at expanding the project through debottlenecking rather than exploration, but we’re certainly keen to lengthen the life of the project,” he adds.
Soon after acquiring the Lerala project, Kimberley was approached by local company Tilwane Services (Pty) Limited. The two companies entered into a Farm-In and Joint Venture agreement on 2 July 2014, in which Kimberley will undertake exploration in two prospecting licences owned by Tilwane, located 55 kilometres and 75 kilometres east of the Orapa Diamond Mine owned by De Beers subsidiary Debswana.
“The exploration has already started and soon we’ll reach the first milestone within that earn-in arrangement, which will give us 50% ownership in the joint venture,” Noel explains. “Depending on the results of the current phase of work, we’ll determine whether to commit to the second phase, which will take us to a higher percentage of ownership.
“We’re very excited about it, because having blue-sky upside in Botswana is something that the shareholders expect of a company with a diamond mine in the country,” he adds.
Back in Australia, not far from Ellendale, Kimberley is developing an alluvial diamond project called Smoke Creek. It sits just downstream of Rio Tinto’s Argyle diamond mine, which produces more than 90% of the world’s rare pink diamonds.
“We expect to get the same type of diamonds that you would get in Argyle,” says Noel. “The resource has been defined and we’re doing some work increasing our knowledge of it; we’re also working on a number of additional studies and approvals that we’ll need before going into production, which we are aiming to do in 2016.”
With the continuation of production at Ellendale, the re-commissioning of Lerala and the building up to production at Smoke Creek, Kimberley will effectively be going from yellow diamonds, to white, to pink. It looks as if the company has a very bright – and very beautiful – future ahead.
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