Aim-listed diamond miner BlueRock Diamonds, which operates the Kareevlei mine in Kimberley, has embarked on a new selling strategy and will, from June, ship diamonds to be sold on the Antwerp market, which the miner says attracts significantly more buyers than the local South African diamond market.

The company had been reviewing its sales strategy prior to the Covid-19 pandemic, with the aim of gaining access to the Antwerp diamond market.

The company also believes the Antwerp market is likely to recover from Covid-19 disruptions earlier than the domestic market, primarily owing to expected ongoing travel restrictions to and within South Africa.

Another benefit of the Antwerp market is that many of the international buyers have offices there.

Accordingly, BlueRock has entered into an agreement with Antwerp-based diamond and gemstone brokerage and consultancy firm Bonas-Couzyn (part of the Bonas Group), to market the Kareevlei diamonds through its Antwerp facility.

BlueRock points out that Bonas is the world’s longest established diamond firm and is the largest global independent diamond and gemstone tender and auction house, operating 50 sales a year.  Bonas attracts about 160 buyers to its sales.

BlueRock expects to export its first consignment of diamonds to Bonas towards the end of June.

The company states that the near-term diamond market remains uncertain and until the tender houses re-open, which is expected to be in June, in Antwerp, the impact of Covid-19 on diamond prices will not start to become clear.

Accordingly, BlueRock has, together with Bonas, been in discussions with New York-based fund Delgatto Diamond Finance Fund (DDFF), the largest non-bank lender to the diamond and jewellery industry, to provide pre-sales finance. The pre-sales finance will enable BlueRock to have greater flexibility over when sales are made, enabling it to delay sales until a time when market prices have recovered.

A non-binding letter of intent has been agreed with DDFF to enable BlueRock to finance each monthly parcel at 70% of an agreed valuation for up to 12 months at a cost of 1.25% a month on the initial funding amount. The mechanism for achieving this is through the sale of monthly consignments of diamonds to DDFF together with a 12-month option on each consignment to repurchase the diamonds at the same price.

BlueRock chairperson Mike Houston says the company has put important building blocks in place in an effort to de-risk the short to mid-term volatility in the market.

CASHFLOW POSITION

Despite no instances of Covid-19 at its mine and having kept costs to a minimum while the Kareevlei operations were on care and maintenance, BlueRock notes that the total cash cost impact resulting from the Covid-19 lockdown has been significant.

This is because the company has had to settle debt with all of its creditors before restarting operations, without having any diamond sales.

However, the miner reports that some of this impact can be expected to reverse in due course as working capital levels normalise.

The company currently has liquid assets and near-term cash of about £1.2-million, comprising cash balances of £400 000.

In addition BlueRock has two diamond tranches on hand, valued at about £300 000 and £537 000. These tranches are due in two equal tranches on June 17 and August 17, resulting from Teichmann's subscription of shares in February.

MINING AND OPERATIONS

Since April 23, BlueRock has been in consultation with the Department for Mineral Resources and Energy, implementing the procedures necessary to comply with the government regulations and to protect the health and safety of its employees.

Accordingly, operations recommenced on May 11.

However, resulting from Covid-19 disruptions, BlueRock’s guidance for the year remains suspended, with hopes to re-issue guidance during the third quarter of the year. The company’s expansion plans are on hold until the position becomes clearer.

To reduce costs, BlueRock is reducing the level of development mining to align with the lower yearly production. It is also halting contract crushing and freezing employment while continuing to manage overhead costs.

The company will also benefit for a period from the weaker exchange rate and the material drop in the oil price.

BlueRock believes Kareevlei, being an opencast mining operation, can operate at full capacity while abiding by the regulations. Therefore, the company anticipates returning to the monthly tonnages achieved during the dry season with its current processing plant.