ANALYSTS initiate coverage on gold developer Dacian, diamond...

ANALYSTS initiate coverage on gold developer Dacian, diamond miner Lucapa, and graphite explorer Mozambi

http://www.miningnewspremium.net/st...&section=General&sectionsource=s58&aspdsc=yes

ucapa Diamond Company (LOM)
Analyst: Mike Millikan, Hartleys
Recommendation: Speculative buy (initiation)
Price target: 49c
Thursday’s close: 46.5c
Reason: Significant diamondiferous kimberlite potential
Comments: Lucapa Diamond Company is an Angolan-focused alluvial diamond miner and diamond-bearing kimberlite explorer. The company holds a diamond concession (Lulo) in joint venture (JV) with Angolan government’s Endiama and local partner Rosas and Petalas in the Lunda Norte province. We continue to be impressed by the quality of the diamonds recovered from the alluvial operation, which reports higher than average per carat prices, testament to the regular recovery of “special diamonds”, which are large in size, and exceptional in colour and clarity. The alluvial operation is expected to generate free cash which can be reinvested into the search for the ultimate prize, diamond-bearing kimberlites. The exceptional quality of alluvial diamonds and coarse kimberlitic indicator minerals now being reported from mining block 8, in particular, has our attention, potentially indicating a proximal primary source with the E259 kimberlite target, less than 500m north now being tested (trenching underway with drilling planned). We initiate coverage with a speculative buy recommendation. Our preliminary price target of 49c/share is derived from a highly speculative discounted cashflow analysis of the current alluvial operation and perception of exploration value in the search of primary diamond sources (which we regard as high). With no reported resources/reserves and limited production history there are some large assumptions and risks to our estimates. In late 2014, Lucapa and its JV partners signed a 35-year mining licence agreement to mine the alluvial diamonds at Lulo which includes the main Cacuilo, and Lulo Rivers, associated tributaries, and terraces. The company commenced alluvial mining in January 2015, and continues to scale up towards the initial target of 20,000bcm of gravels per month, which could deliver in the order of 2000 carats (ct) of diamond per month. The company has a funding deal with a heavy-equipment Caterpillar dealer to increase the earth-moving fleet to further increase the mining rate to up to 40,000bcm per month, which on the currently anticipated grade could double diamond production. No JORC-compliant resources are currently reported, but we envisage an exploration target in the immediate mining areas of a few years, which will increase considerably as additional gravel terraces are uncovered and introduced into the mine plan.The alluvial operation has rather consistent grade and regular recovery of special diamonds, which provides good average per carat prices. The alluvial operation to date has generated over $10 million in gross revenues. We estimate once producing at and above the 20,000bcm of gravels per month, free cash flows should be generated. We forecast a small EBITDA loss for CY15. The southern African nation of Angola has a stable government and is pro-mining, having established a new mining code in 2012 to increase and attract foreign investment. Under the current JV framework, Lucapa is the operator with a 40% interest in the alluvials and holds a 39% interest in kimberlites. Lucapa’s interest in both alluvials and kimberlites has the potential to be increased through pre-emptive rights with the local partner and through recently announced government initiatives. Any increase(s) in ownership is seen as value-add opportunities, appealing to a wider investor base