News

January 28, 2009

Even In The Face Of The Current Hostile Diamond Pricing Environment, Diamondcorp Is Fully Funded Through To Profitability

By Alastair Ford

Hot on the heels of a comprehensive trading update from the South African-focused diamond miner Diamondcorp comes an equally comprehensive research note on the company from analyst Will Dymott at Cenkos Securities. Will captures the essence of the latest developments in his title: “Underground mining commences”, though given that from here on in the company is ramping steadily up towards profitability, it’s interesting that his earnings projections don’t show up until the eleventh, and penultimate, page of his 12-page note. Perhaps that’s because, what with the slump in diamond prices over the past six months or so, previous earnings projections haven’t quite hit the mark. Forecasting profits for any company at the smaller end of the diamond industry seems like a dangerous game to play at the moment, so perhaps the thinking is that Cenkos clients won’t quite believe what they see until they’ve been walked through the detail in the other ten pages first. But it's worth focussing on the money side of things, partly because that's what everyone's doing these days, and also partly because, in Diamondcorp's case at least, working the numbers actually paints quite an encouraging picture.

Diamondcorp had £3.3 million, or R45.2 million, in the bank as at the end of December 2008. It’s also carrying US$5 million of debt at twelve per cent, due for repayment over staged intervals, with the first US$500,000 scheduled for April 2010. Against the running down of that cash pile, Will Dymott is forecasting losses this year, but profits after tax of £1.7 million for 2010, and earnings per share of 4p. On today’s 32p share price, that puts Diamondcorp on a forward multiple of around eight...