Diamond Rok: Investment Update 2023

Diamond Rok (DR) owns the famous Kamfersdam Diamond Mine (KDM) in Kimberley, South Africa. The top 100m of this Kimberlite pipe was profitably open-pit mined from 1890-1914.

Recently, for the first time, this large diamondiferous pipe was granted its full underground mining licence. DR is now applying to list on the ASX, and is currently raising pre-IPO seed capital, to re-open this old mine. To learn more about this historic investment opportunity please read on.

Diamond Rok Is Raising Money To Undertake The Following Businesses

1. To start reprocessing the tailings dump:
   To avoid needing much CapEx, DR has arranged sub-contractors with their equipment to excavate and reprocess the huge tailings dumps on site, on a profit share basis, to try to generate early cash flow.
2. To drill out the KDM’s pipe:
   DR has arranged a drill programme in KDM’s Kimberlite pipe to complete JORC compatible Pre and Bankable Feasibility Studies (PFS/BFS) to define its full economic potential. DR will then decide to sell it or mine.
3. To turn processed Kimberlite into fertiliser:
   Kimberlite tailings are very mineral-rich. After the diamonds have been extracted, DR plans to re-process the tailings dumps using an internationally patented process to turn it into natural fertiliser for commercial sale.

The Capital Structure

• DR has established a new Australian company which is applying to list on the ASX and is now raising A$2.76 million by selling 23 million Convertible Notes at A$0.12 each. These notes will convert into 23 million shares on the IPO. (Caveat: The ASX listing is not yet confirmed.) At least A$2.2 million of this capital is being loaned to DR (South Africa) to complete the KDM site infrastructure and the balance will be used for ASX listing costs.

• At IPO, (intended for June), DR will issue a further 22 million new shares at 20 cents, to raise a further A$4.4 million to cover the PFS drill programme in the KDM pipe.

• At IPO, DR will also issue 85 million more shares under a Share Swap Agreement to acquire 100% of DR (South Africa) and both companies will be merged into one.

• So at IPO, DR will have a total of 130 million shares issued. Based on the intended IPO price of 20 cents, this will value DR at A$26 million. DR will hold 100% of KDM and A$ 4 million cash.

A Brief History of the KDM Pipe Mine

Millions of years ago, all within a 10km radius of modern Kimberley City in South Africa today, a cluster of six huge, rich, volcanic Kimberlite pipes burst up from deep inside the earth carrying vast amounts of diamonds up inside them.

KDM was one of these volcanic pipes, and like the others, it was very profitably open-pit mined between 1880 and 1914. Below is the former open-pit mine on top of the KDM pipe today.

The KDM pipe, (like all other Kimberlite pipes) will descend further down deep into the earth’s core in a cone shape. Today however, for reasons laid out below, this known diamondiferous pipe is the only one of the cluster of the six great pipes around Kimberley that has not yet been underground mined.

When this cluster of rich Kimberlite pipes were first discovered in the late 1860s, they triggered a massive diamond rush and Kimberley City sprung up amongst them as an administrative and supply centre.

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

After WW I, De Beers Consolidated Mines (DB), the largest and best funded company in Kimberley, gradually bought out the unconsolidated open pit operators on all the great pipes. DB then invested substantial CapEx to underground mine them. To date, DB has excavated over 170 million carats of diamonds from them and made billions of dollars doing so.

By 2010, DB had mined out most of the big pipe mines around Kimberley, and were pressured by the ANC to sell their unworked reserve resources (like KDM). DB has now moved to work in neighbouring, and more politically accommodating, Botswana.

Why Was KDM Never Underground Mined?

DB only managed to buy KDM in 1926, later than the five other big Kimberley pipe mines. By then DB were already busy underground mining these other major pipes. So DB chose to hold KDM in reserve for later, to open it after their nearby main “De Beers Mine” was depleted. As one internal DB report advised:

“…mining operations could be profitably transferred from the De Beers to the Kamfersdam 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)

In preparation for its later mining, DB did considerable test work on the KDM pipe. In 1952 and 1981 extensive tunnelling was done across the whole pipe at the 152m and 225m levels (see opposite), and test drilling from 100m down to 300m.

The DB ore evaluation department estimated from their test work that at least down to 300m, the KDM pipe should yield approx 25 CPHT (Carats Per Hundred Tons.) They also surmised that such a yield could likely continue further down. (See Snowden Report.)

The ANC won power in 1994. Then in 2002, before DB opened KDM, the ANC declared a “use it or lose it” black empowerment policy, specifically to stop such white-run companies from hogging South Africa’s prime mineral assets, and DB was pressured to sell KDM to NDC, a black empowerment company. But NDC also acquired other projects, had too much debt, mismanaged the business, and went into liquidation.

In 2010, it was acquired by a South African Israeli diamond syndicate which restructured NDC’s assets. KDM was legally separated out into its own company and received its full mining rights. It has now been acquired by DR which is now raising capital to deep drill the KDM pipe to 800- 1,000m to establish its full economic potential - to then decide whether to sell or mine it.

The Prospective Returns to DR from Developing KDM

1. From Processing KDM Tailings Dumps

The seed money DR is now raising is being used to prepare the KDM site infrastructure. In March, mining subcontractors will begin reprocessing KDM’s huge 5 million ton tailings dumps (below) to try to get early cash flow. The subcontractor will use their own machinery and costs, and work in a profit share deal, which will greatly reduce DR’s early CapEx and risk.

DR have the following data on the tailings dumps:

• DB’s drilling test works on KDM’s tailings dumps infer they contain around 315,000 carats which implies a potential projected recovery rate of 3-6 CPHT.

• In 2007 NDC started re-processing around 500k tons (about 10%) of the KDM dumps and recovered 70,000 carats – a recovery rate of around 14 CPHT.

2. From Core Drilling the KDM Pipe

From their test works, DB’s ore evaluation department infer that down to 300m the KDM pipe could contain around 5.8 million carats. At an average sale price of US$1,000 per carat that would infer a KDM could have a potential IGV of around US$5.8 billion.

The KDM pipe is so far untested below 300m. However, the shapes, depths and yields of all five surrounding sister pipes are known. DB mined them to between 800 - 1,200 m and on average they yielded 34 million carats each.(see below) It is therefore not so unreasonable to infer KDM could ultimately contain a roughly similar volume?

KDM’s Potential Value to DR Shareholders

1. We know that DB’s bulk testing, drilling, tunnelling and sampling in the KDM pipe from between 100m to 300m, infers the KDM pipe should contain around 5.8 million carats in this first 200m zone.

2. More speculatively, based on the known average yields of KDM’s five surrounding sister pipes - KDM could potentially hold a resource of up to 30 million carats when fully drill tested to its full economic depth.

Based on the above known data, and using an average potential sale price of US$1,000 per carat. In 1-3 years, after the PFS and BFS drill programs are completed and a measured IGV is confirmed, we can infer the KDM pipe should have a potential IGV of between US$ 5-30 billion. (A$8 –A$40 billion.)

The stock market normally values such measured assets at between 3 to 10% of their IGV. This could infer a potential future market value of between A$240 million up to A$4 billion. Which, with only 180 million shares out in DR – could infer a possible future share value of between A$1.30 - A$20 per share?

The only way to define its real measured IGV is to drill the pipe to BFS standard. Which is precisely what DR is raising the capital to do.

3. The Kimberlite to Fertiliser Business:

Kimberlite is a highly mineral rich volcanic rock. DR is planning to use a recognised international process to turn its millions of tons of processed Kimberlite tailings into a natural fertiliser for commercial sale. DR’s business modelling so far is not sufficiently advanced to make projections but studies to date indicate this could also be a highly profitable business for DR. More details will be released when the business model and details are better defined.

Rough Diamond Pricing

In their forecasting DR uses an average price per carat of US$500 for the tailings dump recoveries, and US$1,000 for the pipe mine recoveries, because more big stones are expected from the pipe recoveries. DR believes these figures are conservative, for example:

• Ajediam in Antwerp, one of the largest global trading houses for rough diamonds, is currently quoting US$1,500 as the average global raw carat price (See ajediam.com)

• Below is the last quarterly report from Lucapa Diamonds (code LOM), an ASX listed company similarly mining rough diamonds from kimberlite pipes in Africa. Their average per carat sales over the last two years were between US$1,800 - 2,700 per carat.

Larger stones greatly increase average per carat sales values. During its previous open-pit operations, KDM recorded some very large stone recoveries including: 223 carats in 1898, 147 carats in 1902, 132 carats in 1907, 100 carats in 1904.

The Diamond Market, Past & Future

Below is a chart showing the average price of cut (not rough) diamonds from 1960 to 2016. Per carat prices have increased by 1,100% over the last 60 years, and at a remarkably steady annualised growth rate of almost 20% per year

Source: Statista

The future outlook for the diamond market remains positive. This is due to a steady and continuing growth in global demand, particularly from Asia as people get richer. But perhaps more importantly, most existing mines today are depleting and the discovery of any big new mines is increasingly rare. The major miners today seek to acquire big new potential diamond 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 recently constructed 4.5km high security fence around the KDM site has motion sensor lighting and thermal cameras. The Johannesburg to Kimberley highway is in the foreground.

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.