[IMG] It has been a long time since the local bourse had some...

It has been a long time since the local bourse had some genuine diamond exploration excitement. But that’s what we’ve got in the last week courtesy of Miles Kennedy’s Lucapa Diamond Company (LOM)from its Lulo project in northern Angola.

Kennedy has been involved in diamond exploration — and production — for so long that he can almost smell where the sparklers are. And it has to be said he is as excited as we’ve seen him for a long time about the big-time potential of Lulo.

His enthusiasm is rubbing off on the market too. In the last week and a bit Lucapa shares have soared from 18c to the 46.5c on offer yesterday, taking it to a market capitalisation of just more than $100 million.

The stock got a move on after Kennedy revved up the crowd at a mining conference on the Gold Coast last week. It was classic stuff from a seasoned pro, and a lesson to all small miners and explorers that they should not be afraid of highlighting the upside potential, with due acknowledgment of the downside, of course.

Kennedy started out his presentation with some facts and figures on diamonds, and where Lulo fits in to the broader industry. Of all the diamonds produced in the world today, the average size is about 0.5 a carat (or one-sixth of a gram). So most of the world’s diamonds are very small at roughly one-twelfth of a gram (or 144 of them to the ounce). The average price for the half carat (rough) stones is about $US120 ($170).

Lucapa started its alluvial diamond mining operation in early January and has steadily been increasing treatment rates. By the end of June, the operation was cashflow-positive after expenditure of about $40m, helped no doubt by its average sales price (across the five parcels sold) coming in at a whopping $1667 a carat.

“The diamonds we are finding in these (alluvial) river beds are the best diamonds the world has ever seen. There is no exception. We are getting pinks and yellows and Type-IIa whites, the finest white diamond you can get,’’ Kennedy enthused.

It has been a good start (there was a 90-carat rough plucked during week). But what would be even better would be finding the source of Lulo’s oversized alluvial diamonds. It is on that score that things have got interesting for Lucapa.

All diamonds are formed about 150km below the surface, and are brought up by (volcanic) kimberlite “pipes’’ at a rate of about 680km an hour. In the case of Angola, the volcanic event was about 90 million years ago. In the intervening years, the pipes were eroded and the alluvial gravels washed into ancient river systems. Where the pipes were diamond-bearing (not all are), the diamonds were shed in the process — the secondary source of diamonds now being mined by Lucapa.

But where is the kimberlite source? It is a question that Lucapa hopes it might be able to answer that in coming weeks. “If we can find our pipe shedding these diamonds ... then we could be looking at the world’s richest, most valuable diamond pipe,’’ Kennedy said.

He said that since early August, more than 22 alluvial diamonds weighing more than 10 carats each — the industry’s so-called special diamonds — have been recovered from Mining Block 8 to the north of the Cachuma River. More to the point, Lucapa has identified a pipe-like structure it has called Pipe E259 some 500m to the north.

“We are digging and pitting our way towards that pipe. If that indeed is the pipe shedding the diamonds which we are finding within 500 metres of it, then hold on to your hats people,’’ Kennedy said. When he was speaking, Lucapa had a market capitalisation of about $40m.

“I suggest to you that if we find the pipe, this could go up 10-fold,’’ Kennedy mused. Lots of “ifs’’ and “buts’’ in all that but certainly a program worth watching in the weeks ahead. Lucapa will first need to confirm that E259 is a kimberlite pipe, and that it is indeed carrying diamonds in commercial quantities.

Success would have it rewards. About 150km to the northeast of E259, the Russians operate the world’s fourth biggest diamond producer in the world by value. Last year that mine made more than $US600m, receiving $US80 a carat for its stones.