Far East Capital - Weekly Report
Lucapa pulls in a discovery out of left field
While everyone has been focusing on Lucapa’s Angolan
diamond project and the quest for the primary source of the
spectacular high value diamonds coming from the alluvial
mine, the Company has come up with surprisingly good
results from an exploration program on our doorstep, in the
Kimberley region of WA. Last week it reported the drill
results at the 80%-owned Brooking project.
Drilling has recovered 119 diamonds in lamproitic material,
including seven macro-diamonds up to 1mm, from 86.8 kg
of core samples from one HQ (63mm) size hole at Little
Spring Creek. The prospect is located within 50km of the
Elllendale 4 and 9 pipes, which supplied up to 50% of the
world’s fancy yellow diamonds when they were in
production. As always, there has to be follow-up work, but
these results are very encouraging.
The Lucapa share price has been very disappointing
throughout 2017, notwithstanding the excellent diamond
production. Speculators who were hanging out for a quick
fix on the primary sources of the alluvial diamonds seem to
have sold their shares and moved on. Other investors
have shied away from taking a position due to the
geopolitical risks that come with Angola. However, it is time
to take a considered look at what Lucapa really represents
- an emerging, high class diversified diamond producer.
Lucapa has balanced out the Angolan risk with the
acquisition of a 70% interest in the Mothea diamond
development project in Lesotho. This will provide an
alternative income stream with the greater certainty that
comes from hard rock diamond mines, as opposed to
alluvials. The company will continue to mine the high grade
alluvials in Angola, and it will eventually discover the source
of the diamonds. That could still be very exciting. Now, it is
on the path of another diamond discovery in WA, that could
eventually lead to the development of a third source of
diamond production and earnings. As analysts like to say,
there is a pipeline of projects that will underwrite growth for
many years.
The shares spiked 25% on the announcement last week,
on good turnover. The usual profit taking saw them come
off at the end of the week. On a point of disclosure,
interests associated with the author continue to be one of
the largest shareholders in Lucapa. We see that the shares
are ridiculously cheap at these levels and in all probability,
if they stay at these levels, we will embark upon more
purchases. Lucapa is still the best diamond story I have
seen in 35 years.
Expand
