October 21, 2009

Preliminary Results for Year Ended 30 April 2009

In a period of global economic turbulence, exacerbated by political instability, it is pleasing to be able to report significant progress in the development of West African Diamonds (WAD). Recent highlights include:

  • The start up of our Bomboko alluvial diamond mine in Guinea and the subsequent decision to expand capacity;
  • Initial diamond production of 433 carats at a value of $116 per carat;
  • A joint venture on our kimberlite pipe and dyke system in the Koidu area of Sierra Leone. This ensures rapid exploration and development, if justified;
  • An agreement with local management in Sierra Leone whereby they have taken over ownership of the non-core mining lease over Plant 11 in Koidu. They are in the process of reopening the diamond recovery plant. WAD has a 5% net royalty on production; and
  • A rapid recovery in diamond prices after a catastrophic fall in 2007/2008. The price recovery is most notable in the size and quality range produced in West Africa.

Recent political instability in Guinea is a concern and the company is keeping a close eye on developments. WAD has managed to continue development of its operations in the country, though with some delays as a consequence of interruption to supply lines and a prolonged rainy season. Bringing Bomboko into production has been a considerable achievement. Investors in natural resources for the most part are aware that you must go to where the resources can be found before you can mine them. Some resources are widely distributed around the world. Others, diamonds in particular, are old, up to 2,500 million years, rare, scarce and incredibly difficult to find. Diamonds, for the most part, are brought to the surface in small volcanoes known as kimberlite pipes. The worldwide map of these pipes is fairly well known. For over a century, De Beers dominated the industry. During this time, they explored most parts of the world and, with some exceptions, controlled the hard rock kimberlite mines. The alternative to hardrock mining is alluvial mining.

Over millennia, erosion took diamonds from kimberlite pipes and distributed them in gravel on river beds and ultimately on seabeds. This opened up a second type of mining — alluvial mining, where dredges are used to recover the stones.

In addition to being hard to find, one source suggests that diamond prospecting has a 1 in 2,500 chance of commercial success; diamonds vary in quality and size. Most diamond mines produce mainly small stones, often valueless, but some of which are of industrial and/or consumer value. The bigger better quality stones grow exponentially in value.

Guinea and Sierra Leone produce very old beautiful high quality, sometimes very large, diamonds. Most of the diamonds are recovered from alluvial workings. The kimberlite pipes which originally brought the diamonds to the surface are significantly eroded, leaving smaller roots.

The outline above explains why WAD is in West Africa. For decades, Sierra Leone operated the largest alluvial diamond mine in the world in the Koidu region. Former management of the state owned mine approached WAD with a proposal to rework some of the dumps. This led to Mining Lease 104 in the Koidu region where we set up a gold and diamond recovery operation on a 7 million ton dump. The operation failed due in part to using a new technology and in part due to a focus on recovering gold prior to recovering diamonds. With our concentration on production at Bomboko this project has become non-core for the company.

I am therefore particularly pleased that our local management in Sierra Leone have formed a company, Pyramid Resources, acquired from WAD the lease and the diamond recovery plant and are reopening the project. This is good for the local area, for our former employees who have jobs, the state who will get revenue and exports, and for WAD who have a 5% production royalty.

The original focus of WAD in Sierra Leone was on the known kimberlite pipes and dykes in Koidu. We acquired licences over Pipe 3, the smallest of the known pipes and over an extensive swarm of kimberlite dykes — fissures up to 1 metre wide thought to contain high diamond grades. We mapped over 14 kilometres of dykes and confirmed high grades, up to 65 carats per hundred tonnes (cpht) of good quality diamonds. A diamond recovery operation on Pipe 3 was initially frustrated by poor plant design and loss of stones. When these problems were solved, we obtained a grade of 19 cpht, valued at over US$200 a carat. The pipe is very small but subsequent work extended the size. There is a hardrock mine adjacent to Pipe 3. Koidu Holdings mines Pipes 1 and 2.

While evaluating options for Pipe 3, we received an approach from Thunderball Limited — a consortium of foreign and local investors keen to develop a mine on Pipe 3 and the dykes. We have transferred our entire interest in the area to this company, who have committed to intensive exploration, evaluation and, if justified, development. WAD has a 20% interest in the venture and is fully carried through to commercial production.

The net result of these developments is that our Sierra Leone operations will continue, and will develop, at no further cost to WAD.

The focus of operations is now Guinea. Independent geological estimates suggest that our licences on the Bomboko contain at least 750,000 carats of diamonds. Despite infrastructure challenges our management team in Guinea shifted plant and equipment from both operations in Sierra Leone to our new Bomboko alluvial mine.

During 2008 and the first part of 2009, the Bomboko mine was constructed. It came on stream in June 2009. The current grade is as we expected, averaging 6.5 cpht at a value of US$116 a carat, including a 16 carat gem that sold for over $1,000 per carat. This price has probably risen in recent months. Given the encouraging results a decision was made to increase production by installing additional processing plant, namely a 16 foot pan plant. Large excavators are also in use. It is expected that the mine will reach full capacity by the end of 2009. Monthly carat production is expected to rise to in excess of 2,000 carats per month, providing the company with robust revenue.

The second significant operation in Guinea is the Droujba area where WAD has a licence over a series of small kimberlites. Using a rig, we have been drilling shallow holes on this licence. Our hope was to see the small pipes coalesce into one. We also wanted to check grade and diamond quality. The grade is high, we estimate in excess of 100cpht, the quality is as expected but further drilling and testing of the diamond grade is required to establish the economics of the pipes.

In addition to the hard rock project, we have been sampling the rivers in the area where there appears to be significant hard rock and alluvial diamond potential.


If the world has weathered the economic storm and is poised for growth then the future for diamonds is very bright. In recent years, there has been almost no exploration success, apart from the Botswana discovery by African Diamonds. Mines deplete. Most analysts agree that there will be a supply deficit of gem quality diamonds in the coming years.

This impending shortage is the opportunity for WAD. We are a producer of high quality stones. We have known reserves, we are experienced in the industry, but we are too small. Investors, particularly institutional investors, rarely invest in small market capitalisation companies.

Therefore, the future strategy for WAD is to grow by mergers and acquisition, while continuing to develop our own reserves. Toward that end, we were in discussions with a number of other companies. These early discussions came to nothing. However, discussions of this nature continue and I am hopeful that a good result will come from these talks. If positive, it would be a step toward building an independent gem quality diamond producer, founded and focused in developing high grade and high value diamond resources in West Africa.