Namco rides rough seas

With diamond production hitting a record 117,050 carats during the third quarter Namibian Minerals (NMR-T) managed to poke its head above the red ink and post a small profit for the three months ended Sept. 30.

The marine diamond miner (Namco) earned US$96,000 (nil per share) on revenue of US$15.2 million, compared with a year-earlier loss of US$940,000 (1 per share) on US$4 million. The company’s fleet of vessels ran through US$1.2 million to stay afloat, down from the year-ago negative cash flow of US$9 million. With the increase in production direct production costs climbed about US$1.3 million to just under US$9.5 million.

For the first nine months of 2002, Namco’s loss tallied to US$32.8 million (33 per share), compared with a loss of US$26 million (35 per share) during the corresponding period of 2001. Revenue between the two periods nearly tripled to US$27.2 million from US$10.2 million. Direct production costs were little changed at around US$27 million.

The bulk of the quarter’s production found its way from the Nam 2 seabed crawler to the deck of the MV Ya Toivo, which produced 85,444 carats, including a record daily haul of 16,417 carats from Feature 22 on the Hottentot Bay Grant in late July.

In early July, after 18 months of repair and re-commissioning the NamSSol crawler returned to mining lease ML36A in Baker Bay off the Namibian south coast aboard the MV Kovambo. The vessel contributed 30,560 carats.

The MV Namibian Gem added 829 carats and the MV Zacharias chipped in 217 carats from sampling activity.

In all, third-quarter production topped that of the first six months of the year by 30%.

Taking the shine off the quarter’s record-breaking pace, the MV Namibian Gem was towed to Saldanha Bay in South Africa, after its decades-old engines failed. Unable to find spare parts, Namco put the vessel on care and maintenance and is looking at either upgrading or selling the ship. The former option rides on the positive outcome of ongoing refinancing negotiations.

Namco also notes problems with the electrical generators aboard the MV Zacharias exploration vessel, which have the company’s sampling program behind schedule. The company is also looking for new financing to cover the cost of replacing the generators.

“Grave concerns”

During the second quarter, Namco entered into talks aimed at securing additional funding from its principal shareholder, LL Mining Corp., its senior lenders and the government of Namibia. So far, the government has agreed to waive royalty payments due it for up to 36 months, though this is conditional on support from other lenders.

The company said it has “grave concerns regarding its ability to sustain its exploration and production programs,” should the necessary funding not come through.

Adding to the gloom, certain of the company’s South African subsidiaries are subject to taxation queries concerning tax assessments up to 1997. The company’s tax advisors have estimated the potential liability at around US$2-US$3 million, including penalties and interest.

“The company is working with the South African Revenue Service to resolve this matter,” Namco said in its statement.

Namco also says it is reviewing last year’s sampling results from Mining Licence 36A in Baker Bay after changing its sample processing procedures aboard the Zacharias to reduce the possibility of sample contamination. Pending re-sampling, the company plans to downgrade areas in question from probable reserves. The resource inventory will also suffer from the loss of the MV Namibian Gem’s airlift mining capacity, as some of the probable reserves are not amenable to mining with crawlers. With the Zacharias out of commission the company’s program designed to boost resources to probable reserve status has been severely hindered.

At quarter’s end, Namco had US$993,000 in cash and 19,141 carats of diamond stocks, against a working capital deficiency of US$8.5 million.

Namco’s shares have been on a steady decline since early 2000, and were trading unchanged from their previous close at 10 in early trade in Toronto on Dec.3 — just half a penny up on their 52-week low. The shares attained their year-high of 32 in early January.