Frontier Diamonds a rare gem for ASX investors?
Frontier Diamonds, a South African diamond company, will soon hit the ASX boards, joining Lucapa Diamonds.
Diamonds were a scarce resource until 1866 when the first discovery of the Eureka Diamond near Hopetown, South Africa sparked a dramatic increase in global production of gemstones.
In 2016 - 150 years later - global diamond production totalled 134 million carats. Russia holds what is believed to be the world’s largest diamond resource and is currently the world largest producer of diamonds by volume. South Africa produced 8.3 million carats worth US$1.2bn in 2016, making it one of the top ten largest diamond producers in the world.
De Beers is the world’s largest diamond company, which controlled diamond prices for over a century in one of the most outstanding monopolies of modern economics. In the late 1980s De Beers’ market share peaked at almost 90% before its empire started to slowly erode, transforming the diamond industry into a free market with supply and demand driven price dynamics as new competitors emerged.
Frontier Diamonds, a South African diamond company, will soon hit the ASX boards, joining Lucapa Diamonds and offering Australian investors the opportunity to gain exposure to global demand for diamonds. The company has a 74% interest in two operating mines, Star and Sedibeng, which are both located in the renowned Kimberley region.
With a JORC compliant resource of over 1.3 million carats, Frontier will be valued at around $42 million if the maximum is achieved. The company is planning to deploy its cash reserves to ramp up production at its operating mines and forecasts revenues of A$30 million and a net profit of $10 million for the financial year 2019.
Led by Managing Director Jan Louw, Frontier’s management team has a strong track record of developing large scale mining operations in a number of jurisdictions. While diamond mining in South Africa is subject to a number of risks, not many mining companies are able to include a profit forecast in their prospectus and this float could be a diamond in the rough if the company can meet or exceed it forecasts.
Frontier Diamonds Ltd
ASX Code: FDX
Shares on Offer: 30m
Listing Price: $0.20
Market Capitalisation: $41.9m
Listing Date: 27 November
Author: Simon Herrmann
Nov 22, 2017
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.