Elkedra dazzles with 33.44-carat diamond

Australia’s Elkedra Diamonds (EDN-L, EDN-A) has recovered the largest diamond ever at its 100%-owned Chapada mine in Brazil — a 33.44-carat stone that recently sold for US$100,320, or US$3,000 per carat.

The discovery is good news for Canada’s Vaaldiam Resources (vaa-t, vaaff-o), which made an offer to acquire Elkedra in July. Elkedra shareholders approved the takeover offer in a vote on Oct. 29.

Vaaldiam will issue 0.52 of a Vaaldiam share for each Elkedra share. The merger makes Vaaldiam one of South America’s leading diamond producers.

At the time of the offer, the terms valued Elkedra at A50 per share, a 60% premium to the trading share price on the Australian Stock Exchange and the London Stock Exchange.

Elkedra becomes Vaaldiam’s wholly owned subsidiary and will be delisted from the Australian and London exchanges on Nov. 8.

Combined production from Elkedra’s Chapada mine in Brazil’s Grosso state and Vaaldiam’s Duas Barras mine in Minas Gerais state, will total to about 50,000 carats this year. That number should jump to more than 80,000 carats of annual production starting in 2008, Vaaldiam says.

Elkedra’s directors were on board with the offer from the beginning. They claim the merger enhances the new company’s ability to raise debt and equity capital, saves money through synergies and raises the company’s market profile.

Already, over the previous two months, management of both companies has tried to find ways to cut costs and improve efficiencies at Chapada. More specifically, a review of the mine’s diamond recovery plant is under way to see whether production could be boosted via greater throughput.

Other tests are looking at the gold content of the diamond-bearing gravel at Chapada to determine if it is economic to recover the gold.

Vaaldiam says recovering fine free gold at its Duas Barras mine is an important contributor to cash flow.

“We have more than one million dollars (US) in fine free gold on an annual basis,” says Bob Yeoman, Vaaldiam’s chief financial officer. “There’s very little incremental cost because you are recovering the ore anyway.”

Since Chapada started production in July 2006, it has produced 27 diamonds weighing in at between 7 and 33 carats, with sales values of more than US$2,500 per carat. Five of the 27 diamonds have been sold for more than US$4,000 per carat.

In total, the mine has produced 25,700 carats of diamonds at an average value of US$391.07 per carat.

The 33.44-carat diamond announced today was part of a parcel of 2,534 diamonds weighing 1,530.7 carats. The parcel included three other large stones weighing 22.77, 16.41 and 14.39 carats.

The four stones were sold for a total of US$181,849 — or US$2,091 per carat.

Chapada currently sells all of its diamonds to Leviev Diamond Group, a diamond cutter and polisher. Leviev is also a retailer of high-end diamond jewelry in New York and London.