Diamondcorp Share Discussion Threads

[hutch_pod] 05/6/2015 08:46

Hi JAF, yes i did think that but the the EPS dilution would also increase.

I guess from a cash perspective though, the royalty payments would really start to bite, and so the placing would look preferable.

HP

[darcon] 05/6/2015 08:37

I hope they do proceed with making the Open Offer to all shareholders.

[jaf1948] 05/6/2015 08:30

HP,Thanks for those figures - I'm glad someone else did the maths for me. Maybe I (and the company) are just being optimistic but I see revenues being higher than predicted with the new better quality diamonds.Even if it is no better than the rejected deal, I still prefer to be free of outside loans.

[hutch_pod] 05/6/2015 08:24

Hi JAF

Taking 2017, and using SPAngel's £40.5m for net revenue and £23.5m PAT, the 3% royalty would seem to be impact PAT by £1.2m (slightly less as tax deductible) yet today's dilution could mean a 9% reduction in EPS / ie just over £2m equivalent on PAT?

HP

[jaf1948] 05/6/2015 08:17

smarm,

On what basis do you make that assumption ? Loudon has always been straight with his comments and his logic in not going ahead with the deal sounds good to me.

[smarm] 05/6/2015 08:13

I assume the royalty deal fell though.

Typical AIM, ordinary shareholders shafted. However, we are on the home run and there is still a bit of money to be made here.

I hold.

S

[jaf1948] 05/6/2015 08:12

riyazpatel,

On the contrary, because of the better diamond finds, this is not back peddling but instead our CEO is looking to the future and making the better decision for the company (and therefore the shareholders).

[riyazpatel] 05/6/2015 08:07

I wasn't impressed by the news after hearing the ceo say we were fully funded and royalty deal being great for shareholders and now back peddling.

[jaf1948] 05/6/2015 07:52

Hutch_Pod,

This is the relevant piece from the March 17th 2015 RNS:

'The Royalty shall be payable on the first 12 million carats of diamonds recovered from the Lace mine and will be calculated on the net revenue received by LDM after the deduction of diamond marketing costs. The Royalty also incurs a 2% structuring fee on the Advance. After eight years LDM will have the right to repurchase the royalty at an independent valuation.'

Note that the royalty is payable on the first 12 million carats. As today's RNS points out, now that we have found higher quality diamonds, we could have ended up giving a great deal of money away.

[hutch_pod] 05/6/2015 07:42

Wisecat are you able to explain why the dilution from the placing is preferable to that from the net royalty agreement? I must be missing something. Thank you. HP.

[jaf1948] 05/6/2015 07:40

Definitely the right thing to do, but there will be a short term drop but hopefully a long term gain as we will no longer have to pay away part of the profits.

[wisecat2] 05/6/2015 07:21

This is by far the best option for shareholders especially after news of special diamonds.

[tiger60] 05/6/2015 07:12

Placing at 10p but INSTEAD of financing agreement so it is not as bad as it it looks but most people miss the detail and there is usually a drop.

Bit agrieved this is done now when the details of the full years results just a few days ago still referenced the finance agreement, but obviously more than a thoughtt then with a note stating they were free to issue another 30m shares. Also 10p placement price was generous and by the time we get our turn the share price normally falls back to that level.

Maybe this placement is different and discerning investors will see the net gain but the company should of referenced this solution at year end and squeezed for a better price.

Not happy, investment decisions are based on annual accounts and this was not on the schedule, especially with their constant reiteration of looking after the shareholders. Why not debt financing after bulk resource update if positive, or even placing in second half of 2015 when prod confirmed. Unhappy.

[hpcg] 04/6/2015 20:53

Actually with the share price where it is and with the company having the choice it would be in the interest of shareholders to raise equity to pay the loans in cash rather than convert even if they can't get a debt facility which would be the number one option. This ever more the case as the share price rises.

[tiger60] 04/6/2015 20:13

Rare to get quality answers so thanks to you both. I will look at their accounts and website to review.

[hpcg] 04/6/2015 17:32

apadgham - I don't agree with your interpretation. Text from the 18/12/2012 RNS as follows.

"The Bonds are due for repayment at 100% of face value on 31 December 2018 and interest will be paid quarterly in arrears. The first 24 months of interest on the UK Bonds will accumulate and will be added to the principal amount to be repaid. Bondholders can request conversion of the Bonds and outstanding interest at any time after 41 days from issue. Any request for conversion can be settled at the absolute discretion of DiamondCorp with ordinary shares of the Company at 5.81p per share or the cash equivalent of the number of underlying shares multiplied by the share price at the time of conversion. With strong cashflow forecast from mine production due to commence in two year's time, this latter term is intended to minimise dilution for existing shareholders."

So two things, firstly the conversion can happen at any time. Secondly the company is the one with the choice as to whether shares or cash.

No one knows what will happen. If the company has cash it should repay it. Right now it doesn't so anyone choosing to convert would be getting shares, but they would also be forgoing lower risk interest. If I was a holder I would probably convert at the end of this year. We as shareholders get diluted but we also get a reduction in interest liability and reduced debt. On the other hand the end of the year may be too late if operations go to plan and we can arrange finance on better terms.

[apadgham90] 04/6/2015 16:17

Hi Tiger60,

Which regards to your convertible bonds query, the company has two separate convertible bonds, both of which expire in December 2018. The bondholders have the choice to converts these bonds into either shares or receive cash to the value of these shares at that date. As there is a potential cash element that DCP must pay out, the company must recognise this is a financial derivative. As DCP's share price rises, its liability to these investors increases (as the cash payout grows). That £1.8m loss thus was as a result of the share price increasing from 4.8p at 31/12/2013 to 7.4p at 31/12/2014. Note thus this will create a similar charge in the current year books given the increase in share price. Those investors have got themselves a pretty good deal.

On a positive note however, this is not a cash charge and so it won't eat into current cash levels. By the time these do expire, DCP should (we hope) be in a very strong cash generative position, and so shouldn't have too much of an issue paying off these amounts.

[fx analyst] 01/6/2015 19:15

tiger60,yes it will be an interesting few months ahead here and i am fairly
happy to be sitting now with a nice chunk at a 7.7p average :-) Up until
the start of this year i had not really been interested in diamond stocks
but i thought diamond miners were a fair bit safer than other miners in
this current market and so it has proved.I am also seriously looking at
GSR now also which is a microcap diamond play that looks set for gains.

[tiger60] 30/5/2015 11:56

So out of the £3.25m lose for Y/E 2014 £1.7m was due to the fair value adjustment of a convertible bond. That was unexpected - anyone got the details?

But June will be an interesting month hopefully the financing agreement will be signed and the Bulk Sample results will be announced.

The working capital is needed (something they havent been upfront with as they stated earlier in the year they were fully funded to production) and we need that agreement signed.

Other than those niggles very positive for the near term future here.

[darcon] 29/5/2015 12:29

Darwin closed their short to zero on 27 May according to the latest FCA table of shorts as at 28.05.2015

[hpcg] 28/5/2015 17:10

No - the extract above explicitly states finds from the production drives.

[iicb] 28/5/2015 16:35

have all the diamond finds to date just been from tailings?

[granitetim] 28/5/2015 06:58

The potential to unearth some high value diamonds is looking extremely favourable !


"Processing of K6 kimberlite recovered from the production level drives has commenced, including recovery of a 19.83 carat clear white gem diamond, being the largest gem diamond recovered from underground development so far and a 4.38 carat D Type IIA white. The recovery of a Type IIA diamond has value implications for the entire resource as it means Lace has the potential to produce large, very high value diamonds."

[darcon] 26/5/2015 16:33

But they need to get the Acrux facility sorted as otherwise they will need to issue equity to cover the funding shortfall. The following is from the "going concern" section:

"The cash balance as at 15 May 2015 is £0.8 million, which represents a shortfall approximately from £1.8 million to £2.8 million from the balance required to commence production.

In March 2015, Management negotiated and signed a term sheet for a Royalty financing facility of U$7 million (£4.4 million) with Acrux Resources Proprietary Limited in exchange for payments amounting to 3% of future diamond sales. This facility will be immediately available when the agreement has been signed. At the date of signing this Report the Acrux agreement is in the near final stages of completion. Subject to Board approval and signing of a satisfactory final facility agreement, receipt of these funds will be sufficient to cover the working capital required to bring the Lace mine into production. In May, Darwin Strategic Limited exercised 5,000,000 warrants at 9p which added £450,000 to the cash balance. (Please refer to note 15 of the financial statements).

Management also has shareholder authority to issue at any time up to 31,836,418 shares for cash."

It looks to me like Darwin have helped by exercising their warrants as that has improved the cash balance position, which presumably helps management in their negotiations with Acrux. So perhaps we should all be thankful to Darwin.

[darcon] 26/5/2015 16:07

I like the following statement by the Chairman in the strategy section:

"The presently identified constraint on production levels at the Lace Mine is the availability of water but with progressively developing technology and our large resource, there is a good possibility that in the future we could consider increasing mine output."

If they are able to bring forward production by increasing mine output and to do so efficiently then that will lead to an increase in the NPV of the project.