Transcription of Finance News Network Interview with Kimberley Diamonds Limited (ASX:KDL) CEO and Managing Director, Lee-Anne de BruinDonna Sawyer: Hello I’m Donna Sawyer from the Finance News Network and joining me from Kimberley Diamonds
(ASX:KDL) is CEO and Managing Director, Lee-Anne de Bruin. Lee-Anne, welcome to FNN.
Lee-Anne de Bruin: Thanks Donna it’s great to be here.
Donna Sawyer: Let’s start by talking about your Ellendale mine in the west Kimberley region of Western Australia. It’s renown for being a global leader in terms of producing fancy yellow diamonds. Can you give us an update on that project?
Lee-Anne de Bruin: Yeah well its business as usual Donna. We’ve been producing there for a number of years now and the E9 resource is continuing to produce. The plant is running and we’re mining the asset. We still have our E4 resource on care and maintenance; it was put on care and maintenance back in 2009. But we’re putting a lot of focus into looking at how we reopen that, with the robust diamond prices that we’re seeing at the moment. So that’s, you know, business as usual really. So we’re aiming to produce about 160,000 carats this year out of our E9 resource.
Donna Sawyer: I understand you recently recovered bulk samples from the Ellendale mine, where diamond grades were higher than expected. Tell me about that and put it into perspective for someone who doesn’t know a lot about diamonds. What does it mean for your Company?
Lee-Anne de Bruin: OK. So in a diamond asset particularly like ours, we grade what we call our cpht (carats per hundred tonne) is relatively low. It’s very difficult to drill an ore body and to get a very good understanding of what the ore body’s got in it. So what we do is as we go down into the pit, we actually bulk sample areas. And so we run a discreet sample through the plant to get a sense of: is the ore body still delivering what we’ve got in our block model?
And the recent bulk sampling program was run on our far east pit, which is really an extension of the east pit. And we have always had a grade in there of about 2.5 on average, that’s what we’ve estimated. As we’ve gone into that pit and got deeper down, the grade has been delivering in sort of excess of 3.00 – I think in two bulk samples, one was 3.44. So that is really good for us because what it does, it allows us to look at possibilities of extending the resource, being able to move additional ways. And so more ore becomes economical, so it extends our life of mine.
Donna Sawyer: What is your production target for this financial year and how does that compare with previous years?
Lee-Anne de Bruin: OK, so we’re aiming to put about between 4.00 and 4.2 million tonnes through E9 plant this year. That is really in line with what we delivered last year, I think we delivered just under 4.2 million tonnes. In 2011, however, we delivered 3.1 so it’s about a 25 per cent increase on the 2011 year. We did a lot of plant modifications in the beginning of 2012 and we’ve really seen that put us in the ability in which to produce an excess of 4.0 million tonnes. And so that in excess of 4.0 million tonnes would – and we’d aim as I said earlier on, to generate about 160,000 carats. We’re aiming this year to try and push beyond that, but we think we’ll easily deliver between 4.00 and 4.2 million tonnes.
Donna Sawyer: Let’s talk about the diamond market more generally, prices have risen of late. What’s the outlook for diamond prices going forward and what about the fancy yellow diamond in particular?
Lee-Anne de Bruin: Well I mean to give you an idea; our production is divided into our fancy yellow goods, which we then on sell to Tiffany’s. And then we have what we call our commercial goods. The fancy yellow goods make up about nine to 16 per cent of our production, but generated by 80 per cent of our revenue. So we have an off-take agreement with Tiffany and that’s got a floor price set to it. So we sell on average those yellow goods to Tiffany at about $5,000 a carat. Then we’ve got the commercial goods which we sell on average at currently about $190 a carat. So that gives you the discrepancy between the two.
However, we are seeing in those commercial goods a really robust market and we’re starting to see the impact of the demand/supply and issues that we are predicting, in the diamond world. Really what they’re saying in the next five to 10 years, demand for rough production is going to far outstrip supply. And so that is going to have a positive impact on pricing.
Donna Sawyer: Kimberley Diamonds has an agreement with Laurelton Diamonds, the diamond sourcing and polishing subsidiary of Tiffany & Co. Tell me about that relationship. How did it come about and what has it meant for your business in terms of building, not only your reputation but the impact on your bottom line?
Lee-Anne de Bruin: OK, so the agreement has been around formally since about 2009. It stemmed off the back of Tiffany have always been buyers of our – how we used to do it we used to tender our diamonds and they were always big buyers of our commercial goods, and of our yellow production. Back in the day, I think Tiffany’s saw the rarity of the yellows and started a marketing campaign around the yellow goods. And as you’ll see in Tiffany stores now, yellow is a big flagship for their stores. And so we signed the agreement and they buy all of our yellows.
We supply about 30 per cent of the world’s yellows and about 90 per cent of Tiffany’s yellows. So 90 per cent of what Tiffany buy, they get from Ellendale. So the idea with the agreement, it’s a life of mine off-take agreement where we really have, we’re committed to provide all the yellows to Tiffany between now and for the rest of life of mine. It’s basically underpinned our business over the last couple of years; it really underpinned our business in the GFC period. We see our relationship with Tiffany as a partnership, you know, rather than a customer relationship and we treat it that way.
So we had a really good negotiation with them last year where we actually set a floor price. So currently we’re playing and regardless of what the market does, they pay us a floor price which was a 46 per cent increase on the prices we were achieving in October last year. So that was really positive. And obviously we’d look to explore that relationship further, because as the Ellendale mine disappears, 50 per cent of the world’s yellows are going to fall away. So Tiffany will obviously – well we would hope would see value in trying to exploit some of the other resources on the mining lease, to make sure that we continue that supply of the yellow goods.
Donna Sawyer: Finally Lee-Anne, what would you like to see Kimberley Diamonds achieve by the end of 2013?
Lee-Anne de Bruin: Well my view for Kimberley this year is really just to put cash flows on the balance sheet, to show that we can deliver what we said we were going to deliver. You know deliver a result that to the market shows that we’re robust and we can deliver positive earnings. And then to be a first mover, so we’ve just acquired Kimberley Diamond Company or the Ellendale mine and to look out there, to see if there’s opportunities for us to acquire other additional diamond assets to put into our portfolio. And to start to build a diamond, an Australian diamond listed company.
Donna Sawyer: Lee-Anne de Bruin thanks for the update on Kimberley Diamonds.
Lee-Anne de Bruin: Thank you Donna, thanks for having me over, it’s good to see you.
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