interesting diamonds report

Consolidation is also occurring in the global gem quality Diamond sector..
Kimberley Diamonds (KIM +4.9% to $1.06)- Feedback from London. We hosted KIM
in London last Thursday and Friday for 13 institutional presentations. The
key points that came out of that from an operational perspective were as
follows:First and foremost, production this quarter is looking very good.
The new crushing unit is performing as hoped and has solved the oversize
problem that was reported through the backend of last year. This means that
KIM are now able to treat 100% of the ore that is mined. In addition, this
means that they are able to produce a true run of mine mix from the Eastern
and Western lobes of Pipe 9, which means that you will see more high value
stones from the Eastern lobe reported in the production mix. What that
means is that we are set for a solid quarter of production, which will give
a better picture of what is achievable from Pipe 9. Our long held view, is
that the market will start to take a lot more comfort once production starts
to settle down and that is starting to happen. In addition, Kimberley also
have a large backlog of exploration samples to process, which essentially
means that there should be no let up in exploration news despite the wet.

Otherwise, you can see that the stock is definitely regaining credibility
after a tough six to eight months, with the combination of announcements at
Christmas time, ie banking the expansion through Soc Gen, putting in place
an innovative marketing agreement, and also delivering a final feasibility
study for the expansion to 7.2mtpa which was well within those indicated by
Fleur Daniel being the catalyst.

For us though, the most interesting point from last week was the reaction
from the UK investors visited. The reason that I say that, is that there
actually is a peer group of stocks listed on the AIM market in London that
you can compare Kimberley against. One of the best know is Firestone, which
is focusing on alluvial diamonds, onshore Namaqualand, in Sth Africa. This
guys are basically an exploration play, with a market cap of GBP75m and are
up 53% this year and up 327% in 12mths. When we say to UK investors that
KIM actually has a NPV and that that NPV is 30% above the current share
price, then we go onto point out that on our numbers the stock will earn
$26m in 2006, putting it on a PE of 11x and a likely yield of 4% they almost
fall off their chairs. "A dividend paying diamond stock in a political
stable country...unheard of young man!" The thing is that, that is only
half the story, because when you look at the 2007 numbers from Southern
Cross, post the ramp up to 7.2mtpa, the stock is then on a PE of 6x with a
yield of 8.6%. The bottom line is that the stock is very, very, very cheap,
and if these offshore funds really get onto the story it will be re-rated
rapidly before our eyes. Do not miss this opportunity, it will happen it
just takes a little faith on your behalf... From recent substantial notices
you can see a few local investors have taken the leap of faith, and we think
its only a matter of time before global investors see the value and leverage
in KIM..buy $1.50 target..