Diamond Rok: Investment Outlook

Diamond Rok Pty (DR) is an Australian company, established to acquire 100% of the company that owns the Kamfersdam Diamond Mine (KDM) in Kimberley, South Africa.

Kamfersdam Diamond Mine is a diamondiferous Kimberlite pipe which was open-pit mined between 1880 and 1914. Today, it is the only large Kimberlite pipe in Kimberley that has never been underground mined. KDM recently received its full mine licence and DR plans to IPO on the ASX to raise the funds to develop it.

Diamond Rok is Raising Money To Undertake The Following Businesses

1. To start reprocessing the tailings dump:
   Sub-contractors (with their own mining gear), will be employed on a profit share basis, to excavate and re-process the kimberlite tailings dump on site to hopefully generate early cash flow.
2. To drill out the KDM’s pipe:
   DR is arranging to core drill the KDM kimberlite pipe to its full depth to BFS (bankable feasibility) status to define its full IGV (in ground value.) DR then will then either sell it, do a farm-in deal, or mine it themselves.
3. To turn processed Kimberlite into fertiliser:
   After all the diamonds have been extracted, DR will begin processing, using a recognised international process, the kimberlite tailings into a volcanic fertiliser for commercial sale.
4. To line up new mineral development projects:
   Which DR can develop after KDM.

The Capital Structure

• DR will issue a total of 135 million shares for the purchase of KDM: 85 million shares up front; and 50 million more shares after PFS and BFS drill programs are completed.
• DR is now raising A$2.4m via a pre-IPO private placement, by issuing 20 million new shares at 12 cents each.
• At IPO, planned for early 2023, DR will issue around 25 million new shares at around 20 cents, to raise a further A$5m.
• DR will then have a total of 180 million shares on issue.

A Brief History of the KDM Pipe Mine

Kimberley in South Africa sits amongst six huge, famous, and rich diamondiferous kimberlite pipes, which burst up from the centre of the earth millions of years ago, all within 10km of each other, which carried up vast amounts of diamonds within them.

Above is the KDM open pit mine, the top of the KDM kimberlite pipe, which like all Kimberlite pipes should descend deep into the earth in a cone shape. The pipe was profitably open pit mined from 1880 to 1914, but has never been underground mined.

All Kimberlite pipes blow up from deep inside the earth’s core, in cone shapes, some carry diamonds up within them.

When these diamondiferous pipe heads were first discovered in the late 1860s, they set off a great diamond rush, and Kimberley grew up amongst them as the administrative and supply centre.

The surface areas of the pipes were sold off by the authorities in small blocks to be open mined. These unconsolidated open pit mines were primitively worked down to 100-150m before becoming too difficult. The outbreak of WW1 in 1914, halted work in all the mines.

After WW1, De Beers (DB) - the largest and best funded company in Kimberley, gradually bought out all these unconsolidated open pit operators on the six biggest kimberlite pipes around Kimberley.

De Beers then invested bigger capital to start to underground mine these rich pipes for the rest of the century. By 2008 DB had sold most of their mines in S. Africa and had moved out to work more in Botswana.

The Kamfersdam pipe is the only remaining big Kimberlite pipe in Kimberley that has not yet been deep drilled or underground mined.

Why was KDM Never Underground Mined?

De Beers only managed to buy-out the KDM mine in 1926, by then they were already underground mining most of the other kimberlite main pipes around Kimberley. So they chose to hold KDM in reserve, to prevent anyone else having it, plus, becuase they planned to mine it later when their nearby main “De Beers Mine” pipe was depleted.

As one internal De Beers report notes: “…mining operations could be profitably transferred from the De Beers to the Kafersdam mine…” as “…utilisation of the existing De Beers Mine infrastructure would lessen considerably the capital expenditure needed to establish new underground operations at Kamfersdam”. (Barlet, 1982)

DB undertook considerable test work on KDM. In 1952 and 1981 extensively tunnelling across the whole pipe at the 152m and 225m levels (see plans above) and also internally drilling it from the 225m back up to 150m and on down to the 300m level:.

From that Data the DB ore evaluation department estimate,- that the KDM pipe should yield around 25 CPHT (Carats Per Hundred Tons) down to the 300m level, and they also surmised that yield could likely continue much further down. (See the Snowden Report.)

The ANC came to power (in 1994) and in 2002 (before the De Beers Mine was depleted) the ANC implemented a “use it or lose it” black empowerment policy, to stop white-run companies from hogging South Africa’s prime mineral assets. DB was pressured to sell the KDM mine to NDC, a black run company. NDC acquired other projects, took on much debt and mismanaged their business. In 2010, debt-laden NDC was sold to a syndicate of S. African/ Israeli diamond miners and traders (the current vendors of KDM to DR).

These new owners have spent many years restructuring NDC. The KDM mine, the jewel in NDC’s portfolio, was legally separated out into its own new company and after many years’ efforts, this KDM Co has now obtained its full mining rights. DR has now acquired KDM Co and is raising the capital to drill the KDM pipe to its full depth to establish its full IGV and economic value.

The Prospective Returns to DR from Developing KDM

1. From Processing KDM Tailings Dumps

The pre-IPO money now being raised by DR, will be used to build a high-security fence around KDM’s perimeter boundary and prepare all the site and groundworks. This should be completed by January 2023. Then two mining subcontractors will be brought in, to use their own machinery, on a profit share basis (no DR CAPEX needed) to begin excavating and reprocessing KDM’s huge 5.4 million ton tailings dumps to produce early cash flow.

DR have the following information on the tailings dumps potential:

• From DB’s drilling test works on the KDM tailings dump they estimate they contain around 315,000 carats - implying a projected recovery rate of 6 CPHT. (See Snowden Report.)
• In 2007 NDC re-processed around 10% of the KDM dumps (approx 500k tons) and recorded recovering 70,000 carats – implying an actual recovery rate of around 12 CPHT.
• DR is hoping for a recovery rate of at least 4 CPHT.

If the two sub-contractors can each process 1 million tons p.a. at 4 CPHT, that should hopefully produce up to 80,000 carats p.a. Using an estimated US$500 per carat average sale value, that could produce revenue of around US$40m p.a.

Even after splitting that with the sub-contractors and their BE partners, DR still expects to, hopefully, earn significant early cash revenues in their first 2 or 3 years of KDM operations to help fund their project development.

2. From Core Drilling the KDM Pipe

1. A Conservative potential IGV value: From their tunnelling and drilling works, DB calculated that the KDM pipe should contain 5.8 million carats from 105 m down to 300m. At US$500 per carat, that suggests an inferred IGV of around US$2.8b = A$4.4 billion.

2. A Prospective potential IGV value: The KDM pipe is untested as yet below 300m. But, the shapes, depths and yields of all KDM’s surrounding sister pipes are well recorded. (see below) On average, they yielded 34 million carats each. It is therefore not unreasonable to assume that the KDM pipe, when fully drilled out, should contain a similar volume? If we, conservatively, imagine, it may contain just half the average of its five sister pipes - 17 million carats, at US$500 per carat –that could infer an IGV of up to (US$8.5 b) = A$13 billion – or possibly much more?

3. KDM’s Potential Value to Diamond Rok Shareholders

After the BFS drill program is completed and a measured IGV is confirmed, Diamond Rok assume they could attempt to sell KDM for around 10% of its IGV.

From De Beers’ known extensive test sampling data down to 300m, KDM pipe already has an inferred IGV of around A$4.4 billion.

More prospectively, based on the known average contents of KDM’s five surrounding sister kimberlite pipes - when fully drilled KDM could, speculatively, have an inferred IGV of around A$13 billion.

Based on 10% of the above inferred value range, DR KDM could have a potential sale value of between A$400 million to A$1.3 billion.

With 180 million shares out, that sale price range could equate to a per share value to DR shareholders of between A$2 - A$7.

The only way to more precisely define the full measured IGV of KDM’s pipe is to drill it out to an internationally accepted BFS standard. Which is exactly what DR is now raising the capital to do.

Note: The potential DR share price valuations above are just for a potential sale of KDM’s pipe and do not include any value for the tailings dumps revenue or DR’s other prospective businesses.

4. The Kimberlite to Fertiliser Business:

Kimberlite is a highly mineral rich volcanic rock. DR is planning to use a recognised international process to turn the millions of tons of kimberlite tailings, on its own site and around Kimberley, into fertiliser. DR’s business modelling to date indicates this could be a highly profitable business. More details will be released when the final business model details and figures are better confirmed.

5. New Mineral Asset Development Deals

DR management is already using their long-term connections in the diamond and mining industry to prepare other highly prospective mineral asset projects for DR to develop next.

Notes On Diamond Pricing

1. Rough Diamond Pricing:
In their forecasting DR use an average price per carat of US$500. This is conservative. For example:

• Ajediam in Antwerp, one of the largest trading houses for rough diamonds, quotes US$1,500 as the current average global raw carat price (See ajediam.com)
• Below is a 2022 ASX report from Lucapa Diamonds (code LOM). LOM is an ASX listed company mining rough diamonds from kimberlite pipes. Their average per carat sales this year were between US$1,200 - 2,100 per carat.

If such current real rough carat prices are used, - the projected valuations would increase two to four fold.

2. Large Stones Increase Average Carat Prices:
Large stones increase a mine’s average price per carat sale value. During its early open-pit operations, it is recorded that the KDM mine yielded several very large stones, including: 223 carats in 1898, 147 carats in 1902, 132 carats in 1907, 100 carats in 1904.

3. Cut Diamond Pricing:
The chart below shows the average carat price of cut (not rough) diamonds from 1960 to 2016, reflecting how prices have increased steadily - by over 1,100%. Which is a remarkable annualised growth rate of almost 20% per year during the last 60 years.

Source: Statista

5. The Outlook for the Rough Diamond Market:
Remains positive. This is due to the steady and continuing growth in global demand, particularly from Asia. But more importantly, because most existing mines today are depleting, and discovery and development of big new economic mines has become increasingly rare. The majors all need to acquire big new economic mines.

The KDM Site

The KDM site lies just 3km from Kimberley City centre. Water, power and a workforce experienced in all aspects of the diamond industry is readily available. KDM’s western boundary directly abuts the main Kimberley to Johannesburg highway.

The huge KDM tailings dump is prospective because 19th century diamond recovery was so inefficient compared to today’s advanced rock crushing, sorting and diamond recovery technologies.

For Further Detailed Information Please See:

1. The Snowden Report prepared for the ASX in 2008 link.
2. The KDM official deck.

DISCLAIMER: This research report is not an official company document prepared by Diamond Rok. It reflects the opinions of, and was prepared by an independent expert who was not paid by Diamond Rok but is subscribing for shares in their upcoming pre-IPO capital raising.