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..
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