KIM Report

Churchill part 1

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“We shall fight on the beaches…we shall never surrender.” (Sir Winston Churchill)

In regard to this speech by the famed leader and orator, the diamond exploration and mining industry will have to do plenty of fighting in terms of good results and investor relations in order to regain positive investor sentiment.

At least one small producer seems to have surrendered already in terms of Tahera Diamond Corp. (TSX-TAH), the operator of the Jericho Diamond Mine, Nunavut. Underestimations of production costs and overestimations of reserve tonnage (e.g. Muskox Kimberlite) and $ value/t led to the company filing for protection from its creditors despite hiring some big names in the diamond business (e.g. former DeBeers Canada CEO Richard G. Molyneux). Big investment backers such as Teck Cominco (TSX-TCK.B) and Tiffany’s (NYSE-TIF) did not seem to help either.

Juniors have been hit the hardest, with many having seen their share price cut by well over half since last year. Even companies with advanced projects such as Shear Minerals (TSX.V-SRM), Stornoway (TSX-SWY), and Peregrine (TSX-PGD) have been hit heavily.

In part the banking/credit crisis is in part to blame as many juniors depend on financing to get started, and the more advanced of the group depend on loans to provide capital for building their mines. The lack of available cash banks are willing to loan leaves many companies with no option but to issue more equity to finance their projects. This is very bad when their share price is already depressed due to general bearish market sentiment. This creates a vicious cycle as companies that cannot raise enough funds see their share price drop further due to perceived lack of activity by potential investors and/or further dilution.

On the production side of things, even big names such as Harry Winston Diamonds (TSX-HW) (formerly Aber Diamonds, and yes, a weak connection with Sir Churchill) have seen their share prices drop in spite of the only major concern being the rising Canadian dollar (or rather the dropping US$) as their costs are in Canadian currency and diamonds are sold in American dollars. Although even this should be offset by rising diamond prices, mainly in response to the lower US$ in addition to rising demand.

Hopefully the banks will get their acts together soon so that a major economic organ of this country: mining and exploration, can return to full function.

As for the remainder of the Winston Churchill connections, that will have to wait until next post.

This post was first published on my stockhouse.com blog on March 20th, 2008.

One Response to “Churchill part 1”

1. Financial Md » Churchill part 1 Says:
   May 5th, 2008 at 9:22 am

   [...] Original post by KIM Report [...]

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