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POZ Minerals is in prime position for Ellendale, chairman says

POZ Minerals Ltd. Executive Chairman Jim Richards believes that the company is ideally positioned to take over the shuttered Ellendale mine, which once produced about half the world's fancy yellow diamonds, and a Euroz analyst said it is the right time for Western Australia's government to tender the project.

The government said in April that it was working toward releasing the request for expressions of interest for Ellendale in the West Kimberley in the first half. Richards said no terms have been announced as yet, and "we wait with bated breath for what is a very slow-moving process" as the government is ensuring a completely transparent process and a level playing field.

Though Lucapa Diamond Co. Ltd. CEO Stephen Wetherall previously expressed concerns over the regulator's comments that it might take up to two years to get mining approvals, Richards said the fact that POZ Minerals has mining agreements over four separate leases with two separate Native Title groups puts the company "in the box seat" to be the winning bidder as that is often one of the most time-intensive processes.

"The area is largely untested for alluvials, and there's a massive prospectivity for both alluvials and new discoveries of lamproites," Richards said of Ellendale, whose E9 and E4 pipes have "both been pretty much been mined out, but in terms of exploration ground, there's a huge amount of potential there, and that's what we're most interested in."

Richards is a specialist in alluvials, having set up an alluvial dredging operation mining diamonds in Guyana's rivers after leaving the British Army in 1990 and leading the technical team that discovered the high-grade iron Railway deposit in the Pilbara, which BHP Billiton Group acquired in February 2010 by taking over United Minerals Corp. NL for A$204 million.

While most of the plant and equipment at Ellendale was sold off for scrap during liquidator auctions in 2015 as its former owner, Kimberley Diamonds Ltd., went into receivership, Richards said there is still some "excellent" supporting infrastructure, such as the roads that run to within 4 kilometers of the Blina project abutting Ellendale.

Besides, "whether there's a plant there or not is fairly irrelevant to me because we're only doing alluvial mining, of which the plant consists of a trammel screen and sorter, which I've already bought, so CapEx is lower than A$1 million," Richards said.

There are also some tailings Richards has looked at that POZ Minerals could use to restart production, though the regulator said they are likely to be low-grade.

Getting on with Blina

While the government deliberates, POZ Minerals is getting on with Blina, whose alluvials are better than on the Ellendale lease, according to Richards. The company announced Aug. 6 that a trenching program had identified new and extensive areas of untested, shallow alluvial gravels in a historically diamondiferous channel complex 12 kilometers west of the historical Ellendale 9 mine.

Richards said new geophysics, including ground penetrating radar, has "busted [Blina] wide open and enabled us to track the bedrock now to directly target the alluvial diamonds' trap sites," as mobile phone technology has increased the signal acquisition rates, so the signal-to-noise ratio has decreased.

That, along with 50% higher diamond prices and a 30% better exchange rate, gives POZ Minerals the advantage over Blina's previous owner, Blina Diamonds NL, which had the project in 2006, the CEO said.

POZ Minerals is now looking for a corporate partner or cornerstone investor to fund what Richards described as a "modest amount" to progress to phase-one bulk sampling for diamond recovery before phase two, where the best grades would be mined immediately.

Euroz Securities resources analyst Michael Emery said the government would be looking at Ellendale bidders' previous history in those sorts of operations, targeting companies seen as having cash and "demonstrating that you are not just a speculator with a nearology play, you're actually willing to put money into the project."

Emery believes that the macro setting is right for the mine to be brought online as rare and fancy yellows are attracting a premium in the market at the moment, particularly with Rio Tinto's Argyle mine due to be closed by around 2020, which will leave a big hole in the market.

"Industrial diamonds are being produced by the bucket load, particularly out of Africa, and there is some competition from artificial diamonds, but fundamentally, it's still a strong space to be in, with China and India's growth and more than 2 billion people set to move into the middle class, looking for big fancy diamonds," Emery told S&P Global Market Intelligence.