Lucapa set for double dose of diamond action
Exploration is poised to resume at Lucapa’s spectacular Little Spring Creek find in WA, where the company recovered 19 diamonds from one drill hole shortly before the wet season set in last year, while first production is looming at the Mothae diamond project. Plus, Nagambie hunts for Fosterville-style bonanza gold.
Long-time diamond buffs Miles Kennedy (chairman) and Stephen Wetherall (managing director) have positioned Lucapa Diamond Co (LOM) to become a rare thing before the year is out.
The rare thing status will arrive when Lucapa becomes a diamond producer from not one, but two diamond mines where the average value of the rough diamonds is more than $US1,000 a carat.
It is where a company needs to be in the at-times fickle diamond market because recent history has shown that the high-quality and large stone segment is seemingly immune from the ups and downs felt by the cheaper end of the market.
FinnCap’s mining research director Martin Potts summed it up in the following: “Over the past decade the price per carat for larger diamonds appears to have improved substantially, in line with the increase in the number of billionaires.”
Lucapa is an established alluvials diamond producer from its Lulo project in Angola where the tantalising search for the kimberlite source of the high-value stones continues. And in the second half of the year, Lucapa will establish its second production base at the redeveloped and expanded Mothae kimberlite mine in Lesotho, picked up last year.
Mothae stands as something of a game-changer for Lucapa as unlike alluvial operations which can be a bit hit and miss, it comes with a stock exchange-compliant diamond resource of more than 1 million carats (to a depth of 300m) at an average modelled value of $US1,063 a carat.
Kieron Hodgson, a rated analyst at London’s Panmure Gordon, came back from a visit to Mothae last month and penned a note which said the project was “being brought into full-scale production in a sensible and economically prudent manner, and given the propensity for large high-value diamonds, the current resource valuation offers scope for improvement.”
More to the point is that he placed a 46c price target on the stock. That compares with Thursday’s close of 23c, valuing Lucapa at $89m.
All that is very interesting and suggests a re-rating for the stock as Mothae kicks into gear in the second half and confirms volumes, grades and carat values.
But the near-term buzz in the stock is actually coming from the company’s exploration efforts back home in Australia.
Once the wet season is out of the way, Lucapa will return to the site of one of the most significant diamond discoveries in recent times at its Little Spring Creek prospect, part of its broader Brooking project in the West Kimberley region.
Lucapa reported in January that it had recovered 19 diamonds from 86.8kg of samples taken from a drill hole into the Little Spring Creek lamproite (the world’s number two source of diamonds after kimberlite).
To recover diamonds at all from a 63mm diameter hole would be amazing stuff. But to get 19 makes the blood race. Of the 19, seven were macro-diamonds (plus 0.5mm), and 112 were micro-diamonds (less than 0.5mm).
It was exciting stuff, even more so when analysis of the stones showed relatively high white diamond content, with yellow diamonds also being noted. Brooking sits about 50km from the Ellendale mine which, when it was in production, was the world’s leading source of “fancy yellow” diamonds.
No timing yet on when Lucapa returns for follow-up work on Brooking. But it has said previously “work will commence as soon as access to the West Kimberley region is available again after the northern wet season”. Travel guides will tell you that is usually around April.
Nagambie’s hunt for Fosterville-style bonanza gold
Exciting times are in store in the months ahead for a stalwart of the Victorian gold scene, Nagambie Resources (NAG).
The excitement comes from news it will kick off a diamond drilling exploration program early next month at its namesake Nagambie project, 120km north-east of Melbourne.
The program will test for gold-in-sediments in a sulphide target identified by a recent induced polarisation survey over the property which, when owned by others, was a producer between in the early 1990s of 130,000oz of oxide gold from a couple of shallow pits.
The IP lit up with all the colours Nagambie has been hoping for, with a sulphide target some 2,000m long and shown to start roughly 180m down-dip of the old oxide pits, jumping off the page.
Nagambie chairman Mike Trumbull reckons the modelling of the sulphide target was a “sensational development” for the company. The market was not too sure about that and will wait for first results from the pending drilling program before getting too excited.
But there was enough interest in the IP results to have Nagambie shares pushed 3c, or 19%, higher to 19c for a market cap of $76m.
And the reason for that is simple enough – analogies between Nagambie and Kirkland Lake’s treasure trove mine at Fosterville, some 60km to the west.
Fosterville is staking its claim to be the best gold mine in Australia as Kirkland works on increasing production from 260,000-300,000oz this calendar year to as much as 400,000oz in 2020 when the super high-grade Swan Zone (1.16 million ounces grading two oz of gold a tonne) is in full production.
Fosterville and Nagambie are both antimony-arsenic-associated, gold-in-sediments (silicified sandstones and siltstones) deposits formed at the same geological time (around 376 to 377 million years ago), making them very different to Victoria’s nuggetty gold-in-quartz-veins gold rush heroes of Bendigo and Ballarat (formed around 420 to 440 million years ago).
Fosterville started out life like Nagambie as a gold producer from oxide scratchings. But in recent years the push deeper into sulphide material has delivered the bonanza of massively higher grades as the depth increases.
What limited drilling into sulphide material there has been at Nagambie in the past was relatively shallow at roughly 150m below the pit floors. Best results back in 2006/2007 included 26.7m at 5g/tonne gold from 110m.
Apart from being shallow, the drilling was conducted without the benefit of the IP targets Nagambie now has to hand. Nagambie’s hope is that its grades increase in deeper sulphide mineralisation positions, as is the case at Fosterville.
Its diamond drilling should be ready to go in about three weeks and will be worth keeping an eye on. It is worth mentioning that Nagambie’s market cap is not for its Fosterville-style gold hunt alone.
A big chunk of its value reflects its work over the years on finding a use for the old oxide pits and the associated overburden and tailings dumps at Nagambie, all with a very green flavour.
The old pits are destined to become collection points for the safe storage of potential acid sulphate soils being excavated in massive amounts from Melbourne’s infrastructure boom. Store the material under water to prevent the formation (oxidation) of acids and sulphates, cap it with clay, and it’s a case of problem solved.
The recycling of overburden and the tailings to produce sand and aggregates for concrete and road base material is already a revenue spinner for the company.
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One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.