Stock price when the opinion was issued
Building a mine with DeBeers that should go into production by the end of the year. He prefers Kennady Diamonds (KDI-X) as he feels it is significantly undervalued relative to what he thinks they have, especially in the context that there is a mine on their back door that will be operating soon, and this will come back into DeBeers fold.
There are some issues in the end markets for diamonds. India had a de-monetization of currency late last year. The Indian diamond cutting and polishing industry is pretty much a cash-based fragmented market place. De-monetization has created quite a disruption and created problems for producers selling into it. He would be a little wary about this. However, there has been some M&A stirred up within the sector and there could be value buyers sniffing around, but the near-term profitability is a little bit murky.
Sees no change to the dividend theory. The 3 Irish business millionaires actually control the company and are holding it long-term for the dividends. The company has some costs going on disadvantaging it. The diamond sector itself has not produced really stellar performance. This is a “wait and see”.
The Gahcho Kua project is 51% DeBeers and 49% Mountain Province. It will commission this year and go into production. Lots of people are optimistic about it. When the diamond models were valued by WWW, the base case price was skewed towards the lower end of the low/high range, indicating the diamonds were not that great. However, when they did their 10,000 carat bulk sampling, they got several absolutely fantastic diamonds. The measured value of the carats is way in the money. The expectation is that when this goes into commercial production, there will be a repeat of the big, beautiful diamonds, and will carry this project into substantial profitability. You may have to wait until the end of 2017 to know if the high quality diamonds are showing up.