March quarter likely turning point for KDC Thursday, 1 March...

March quarter likely turning point for KDC

Thursday, 1 March 2007
Rebecca Lawson

PRODUCTION problems at Kimberley Diamond Co's Ellendale mine north of Perth has resulted in a heavy loss of over $10 million for the 2006 half year but broker firms Goldman Sachs JBWere and Citigroup believe the diamond miner is at a turning point, with the current quarter the key.



KDC's year-on-year losses widened from 2005's $4.6 million to $10.4 million. However, revenue for the period rose 33% to $19.8 million from $14.9 million.

The current loss and revenue figures were off the forecast figures from brokers, with Citigroup estimating a half yearly loss of $3.2 million and revenue to be up at $36 million.

Meanwhile, GSJBW forecasted an adjusted loss of $18.3 million – KDC's adjusted loss stood at $12.3 million – while the broker's revenue estimate was not far off at $19.5 million.

Both brokers believed the slow production ramp up at the Ellendale 4 plant and issues with Ellendale 9 were part of the reasons for the increased loss for KDC over the half year.

Despite the lower figures, KDC did achieve some records, with ore processed up from 1.8 million tonnes to 2.1Mt, and record carat production of 157,000 carats worth an estimated $30 million.

Of those carats produced, 60% were sold with 94,500cts at an average price of $US158 per carat.

The remaining carats were held over for the normally buoyant diamond market in the New Year, a typical strategy for diamond miners.

That buoyant market could spell a change in KDC's position, with recent sales in 2007 achieving a 6% better than valuation price.

Citigroup believes this quarter could be the turning point for the company, coupled with the recent complete commissioning of the Ellendale 4 plant and plans now underway to rectify construction mistakes at Ellendale 9.

However Citigroup is cautious, citing a late wet spell and a longer-than-expected rectification time for Ellendale 9.

"Another reality check is that exploration results really have to be close to spectacular to reignite Kimberley's charm given the ordinary earnings outlook," Citigroup said.

Meanwhile, GSJBW believes the company will need to raise additional funds either through equity or debt markets with the first $5 million project debt repayment due at the start of April.

GSJBW's retains its short-term and long-term recommendation as Underperform and Hold, respectively. Citigroup downgrades its recommendation from Hold/Speculative to Sell.

KDC has budgeted $25 million of diamond sales for the March quarter and is planning to ramp up production to 8Mt per annum for the next financial year.

Shares in KDC climbed 6c to 99c by lunchtime today.



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