+ data and comment +

Website: http://www.kimberleydiamondco.com.au/

BigChart: http://bigcharts.marketwatch.com/javachart/javachart.asp?symb=au%3AKIM&time=&freq=

1. Mining and Production.
Kimberley Diamond Company's mining operations are based at the Ellendale Project, 140 kilometres east of Derby in Western Australia's West Kimberley region.

Mining is carried out by contractor using large hyudraulic excavators in conjunction with 85-tonne haul trucks and other support equipment. Mining is suspended during the wet season (November to March) but the production plant operates all year round, processing ore stockpiles during the wet season.

The Ellendale Mining Lease includes the operating plant and infrastructure of the Ellendale Diamond Project. Stage 1 of this project is based on a 600,000 tonne per annum diamond production plant, diamond recovery unit, cap and associated infrastructure at the Ellendale 9 Pipe.

Mining operations at Ellendale 9 will be expanded from early 2004 with the addition of a 2.2 million tonne per annum diamond production plant located adjacent to the existing mining operations. This will significantly increase annual diamond production from the Ellendale Field from the Stage 1 level of approximately 60,000 carats per annum.

Stage 2A is forecast to recover over 1 million carats in the Western Loble of Ellendale Pipe 9 over an 8 year period, generating forecast sales revenue in excess of A$300 million and a forecast cash operating surplus of over A$190 million.

Kimberley's long-term mining and production plan is to construct a second 2.2 million tonne per annum production plant at Ellendale Pipe 4 by mid-2005 establishing a second mine and increasing total production capacity at the project to approximately 5 million tonnes per annum.

Stage 2B will recover additional resources totalling over 2.4 million carats in Ellendale Pipe 4 South, Ellendale Pipe 4 North-west and Satellite Pipe 4, as well as any additional resources identified through ongoing exploration.

Total identified resources in both pipes (including a satellite pipe) stand at 45.9 million tonnes to a depth of 80 metres at an average grade of 7.33 carats per hundred tonnes for total contained diamonds of 3.5 million carats (as at June 2003). THe In SITU value is approx. $A560 mill.

The Ellendale Mining Lease also covers an additional 35 known diamondiferous pipes, plus 13 newly identified pipes.

Wet concentrates from the DMS plant are transported to a nearby final diamond recovery plant located in a secure building containing two x-ray flowsort separation units.

Kimberley currently employs approximately 77 people at the Ellendale Diamond Mine who are accommoded at minesite. The work roster is 20 days on/10 days off and is a fly-in/fly-out from Perth and Broome.

The total number of on-site employees and contractors will increase to approximately 130 with the commencement of the Stage 2B operations.

2. Shares and Options.
Shares: 201.6 mill. (share price 87 cents) and 50.5 mill. 28 April 2006 options at a conversion price of 35 cents. (Code: KIMOA; current price 68 cents?) Also 9 mill. unlisted options Dec. 2007/2008.

3. Prospects.
New Pipes are being discovered all the time:
http://stocknessmonster.com/news-item?S=KIM&E=ASX&N=252348

Nov. 25, 2003: Chairman's address:
http://stocknessmonster.com/news-item?S=KIM&E=ASX&N=250470

Extracts: "We completed a feasibility study on Area 1 of Pipe 4 in November 2002, which showed that by treating only 8 million tonnes in Pipe 4 to a depth of only 80 metres we could fully repay $21 million in capital expenditure on a new 2.2 million tonne per annum throughput plant in 9 months and that the internal rate of return on this would be 97%.

We brought in the biggest drill rig into Australia, the Bauer 2.5 metre diameter drill rig from Germany, which revolutionised our understanding and confidence in Pipes 4 and 9 and brought forward our evaluation programme by at least 2 years.

We recently recommenced further regional exploration on the Terrace 5 alluvial diamond paleogravels. We are testing the geochemistry of anthill samples, which have successfully led us to discovering 31 pipes in the past.

We have seen the emergence of the previously unrecognised Central and Eastern Areas of Pipe 9 where we hope to establish at least another 10 million tonnes.

"We have also seen Areas 2, 4 and 5 being the Northern and Eastern Areas of Pipe 4, deliver economic diamond grades and tonnages and we believe that once these results are all processed, and with further work below 80 or 100 metres depths, we will deliver somewhere between 80 and 100 million tonnes of economically mineable material from Pipe 4, Satellite Pipe 4 and Pipe 9.

If we get anywhere near this by March 2004, I believe we will be further expanding plant throughput capacity and by the end of 2006 we will be mining and processing 8.8 million tonnes a year. Production will rise from 100,000 carats to over 400,000 carats ranking Kimberley amongst the top 5 producers in the western world.

Whilst we will remain a hostage of a rising Australian dollar, the cash operating margin per tonne processed remains very substantial if we can operate at this enhanced level we will be very profitable for 10 or more years, on what we already known.

We have seen our diamond sales prices increase in line with the increase in the Australian dollar rate against the US dollar, so perhaps there is some hedge there".

4. Comments.
It is clear that mining will proceed for many years: exploration will prove up more pipes while sofar, mining will proceed to 80 m depth. But they can go a lot deeper than that.

From the Annual report: "...... expected to increase to more than 400,000 carats of diamonds per year by 2006, thereby making your Company one of the largest diamond producers in the western-world with cash earnings of around $0.20 per share on the current diluted share capital."

Based on a P/E of 15, the share price then could be $3; similarly, on P/E of 20 or 25, the shareprice could be $4 or $5. Much depends on the througput at the production plants and it seems KIM is not averse to speeding up the profit process.

That is my opinion,

Gerry
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