Industry News
Namakwa changes selling, beneficiation strategy in weak rough diamond market
23/01/2009
By: Shané Swanepoel
Gem-miner Namakwa Diamonds said last week that it was likely that it would put some of its mines on care and maintenance, in response to weak rough diamond prices.
Namakwa Diamonds announced last year that it was reviewing its operations in South Africa’s North West province to improve profitability.
“Following the completion of the review, it is likely that certain operations will be placed on care and maintenance, while others may be significantly reduced,” the London-listed company said in its quarterly report for the period ended January 12.
Namakwa Diamonds reported a 2,7% quarter-on-quarter increase in output, despite declining market conditions. Between September 1 and January 12, the company produced an estimated 12 207 ct, and recovery grades improved by 31,9%.
In the period under review, the company changed its diamond selling and beneficiation strategy, owing to the “disproportionate” decrease in rough diamond prices relative to polished prices.
Namakwa Diamonds has refrained from selling significant volumes of rough diamonds during the period, and has instead committed a large portion of its rough diamond inventory to cutting and polishing at its own facilities.
“Selling a higher proportion of its inventory as polished diamonds enables the company to realise higher prices and margins,” said the company.
The company stated that it had experienced very limited price declines for the sale of its polished diamonds as a result of its relationships with long-standing customers, extensive knowledge of the buyers in the industry, and the ability to exercise price discipline, owing to a well-capitalised balance sheet.
Namakwa Diamonds added that the continued depressed state of the diamond market was likely to deliver opportunities to buy rough and polished goods at greatly reduced prices from distressed mining companies and dealers.
This would create opportunities for players such as Namakwa, which held an unleveraged diamond inventory, and had sufficient cash reserves to polish its own rough inventory and capture polished margins.
The company reported that the capital expenditure incurred in the replacement of the rotary pan plants with dense-medium separation (DMS) plants was almost complete, and that it had decided to complete the construction of the first plant. However, construction on the remaining two DMS plants would be delayed until rough diamond prices have recovered.
As far as the company’s assets in the Democratic Republic of Congo were concerned, Namakwa stated that it would perform an assessment to determine the most efficient method of further developing the resource. However, commercial mining would not begin until there was more certainty on diamond price levels.
Namakwa stated that the plant would most likely be ready to start commercial mining by the second quarter of 2009.
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