Analyst sees Namco rising from watery grave

Marine diamond mining is a high-risk business, as Namibian Minerals (NMR-T) discovered earlier this year when its NamSSol crawler system split in two while being recovered from the sea-bed in coastal Namibia. The ill-timed accident almost spelt the end for the company, which had spent heavily, over several years, on technology, development and the takeover of a rival producer. However, a recent financing and a new diamond industry partner have rescued Namco from a watery grave, prompting Canaccord Capital’s Roger Chaplin to take a fresh look at its prospects.

“Namco has now raised a total of US$29.6 million to bring its subsidiary companies out of voluntary liquidation and get its ocean diamond mining operations back under way,” Chaplin notes in a research report. “Approximately half the funding is being placed with the Leviev group, whose interests include diamond cutting and polishing in Israel and Russia. The group should bring added value to Namco’s diamond marketing.”

In addition to downstream cutting and polishing, the Leviev group holds interests in two mines in Angola, plus the marketing contract for all diamonds produced under government control in that country.

Namco, meanwhile, has reached a rescheduling agreement with its banks, and is close to an agreement with various trade creditors. This was no easy task, given that some creditors had already issued writs against some of the operating subsidiaries. Namco opted for voluntary liquidation, which, under South African law, gave it breathing room to arrange new financing to bring the subsidiaries out of liquidation and resume operations.

Now that the financing has been achieved (through the Leviev group and institutional investors), and the companies discharged from liquidation, operations have resumed. Furthermore, the Nam 2 is now completing its commissioning and should be fully operational in the second half of this year.

“At full production,” Chaplin adds, “we expect Nam 2 to produce 250,000 carats per annum, approximately double the expected rate for the NamSSol. The new system is more powerful and can operate in areas with greater overburden and softer footwall conditions than the NamSSol. This is another major positive step for Namco in its development of profitable undersea mining technology.”

Namco’s eleventh-hour rescue has prompted Chaplin to issue a “buy” recommendation, with a 12-month target price of $1.05. The company trades at about 80.

The Leviev group controls about 39% of Namco, based on its initial funding agreement. If all warrants, debentures and loans are converted into shares over the next three years, Namco’s issued shares will increase to 187.4 million. This could add US$21.7 million to Namco’s coffers. It also allows the Leviev group to increase its equity stake to 42.5% of the marine diamond miner.