PERTH (ResourceInvestor.com) -- Australia's second diamond producer Kimberley Diamond Co NL (KDC) is just gearing up exploration, plant development and a start to mining a second lamproite diamond pipe following the end to what has been a very light Wet season in the West Kimberleys of Western Australia.
The miner began operating at the Ellendale diamond field about three years ago after gaining an established mining lease there from Rio Tinto Ltd and will be making the big step this year from being a mid-tier diamond miner to a major operator.
By opening up Ellendale 4 (E4) as the second operating open cut mine and building a 4.4 million tonnes per annum plant there and streamlining the front end crushing capacity at the operating Ellendale 9 (E9) pipe, KDC will be on course to lift production from an annualised 120,000 carats to 700,000 ct. KDC's executive chairman Miles Kennedy said projections were that the production lift over the next few years should elevate operating cash flow from a current $A44 million to about $A150 million.
Linked to the expansion KDC will have an office set up in the premier rough diamond capital of Antwerp in Belgium, to be used by technical director Peter Danchin - now living back in South Africa -- and the company's diamond valuator Nick Yiannopolous.
Kennedy said that with a dramatic lift in stones for sale outside of those going into an established agreement with a syndicate, the cutting out of diamontaires and other agent commissions of 3% per stone will represent an enormous saving.
The syndicate deal, struck last year, will see a right to take 50% of run-of-mine (ROM) roughs from current and future production from both E9 and E4 for at least five years.
All ROM stones have come from E9. While E4 has a larger resource and greater carats per 100 tonnes (cpht) the better valued E9 stones gave KDC the first market avenue.
The listing of Blina Diamonds NL in 2004 to hold all the areas or consolidated with other companies in the Ellendale field sees KDC now focused on mining, and the controlled new entity doing regional exploration and diamond recovery from bulk sampling. The two companies collectively hold almost all the original discovery pipes and targets in the Ellendale field, covering 800 square kilometres.
A KDC site geologist Albert Thamm, who earlier worked for associate company Namakwa Diamonds NL in South Africa, told resourceinvestor that Ellendale was a geologists' treasure trove.
Where else in the world, he said, can you go into a field that virtually has 100 pipes now and where at least one new pipe or good target is unearthed every month.
KDC's share price has been on a steady rise so far in 2005 after losing a third of its market capitalisation in late 2004 when analysts and some investors reading presentations made by the company at a Kalgoorlie conference and subsequent presentation in London. They had put two and two together and come up with three.
For a publicity-conscious company this panic was agony, with allegations that it had downgraded reserves, was slowing down development and suffered a major capital expenditure rise. This inaccurate assessment reflected that diamonds can be a very different resource business, particularly for mining analysts for few in Australia are up to speed on diamonds.
As it is, capital costs have come in under budget, reserves have not changed (the blue sky for adding to Ellendale's resources from new pipes is getting brighter). The earlier proposal to have this year milling capacities of 4.4 mtpa at both E4 and E9 took a step back as scope to broaden development, thanks to the fact that processing of wide-diameter drill bulk samples showed a section of E9 considered uninspiring from Rio Tinto's intense slim hole drilling of two decades before, proved it to now be the pearl of this pipe.
E9 has a reserve of 25 mt to 120 metres depth and a resource of 30 mt taking the mineralisation down to between 130-140m. This, Kennedy said, gives a known mine life of 15 years.
In the six months to December a total of 1.0469 million tonnes of E9 ore was treated along stockpiles for 48,135 carats, and diamond sales for the half year were 53,265 ct at an average $US238/ct for $17.368 million and while there was an operating profit in yet another period of high capital development costs -- $2.782 million - State royalty and non-cash depreciation and amortisation eroded this to five a loss of $1.94 million.
One vexing issue for KDC, as it is for the now mature Argyle diamond mine of Rio Tinto Ltd, is the 7.5% State production royalty, something Argyle wants changed if it is to proceed with underground mining at Argyle.
Blina Diamond's managing director, David Jones said this new field season will see the company equipped to undertake 24 hour/day sampling.
He said about 60 pipes in the field were found by Rio Tinto and its earlier partners while KDC has so far found 40 using modern electromagnetics, aeromagnetics and others of today's sophisticated search tools.
Blina's big focus is to continue testing (and trial mining) the Terrace 5 gravels and alluvials of the E4 pipe J Channel on the permitter of the mining lease, and it will be undertaking detailed sampling on several of the pipes including E13 and E12 which are close to the current end-trail of the Terrace 5 diamonds. Other pipes to be prodded this field season are E7, E10 and E11.
Jones' team has at its disposal one 50t/hour and two 10t/hour bulk sample treatment facilities.