Potential 10 baggers & how to spot them
4. Namakwa Diamonds. Current price 4p The financial profile of South African Diamond miner Namakwa has changed extensively in recent days following a proposed (and underwritten) capital raising of some $55m in order to pay down debt. Essentially, the company’s largest shareholder (Jarvirne Ltd) has been supplying loans to the company in recent months to assist it with working capital requirements, and the proposed capital raising is a conversion of the majority of these loans into equity. In the event of other shareholders not stepping up, the end result will be Jarvirne owning over 80% of the company. Aside from the debt repayment of approx $45m, the proceeds of the Open Offer will be used to meet short-term capital and operational requirements. Management of the company have said that they expect to move into a cash-flow positive position in Q4’FY2012, and that as a consequence of the restructured balance sheet that the new capital should provide a platform for revenue growth, positive EBITDA and free cash-flow.
Again, as with the other recommendations, the historic chart does not provide pretty reading with the shares falling from over 60p to 4p. The company has also been involved in a legal dispute over ownership rights of its diamond mines with a Group called Batla Minerals and this has depressed sentiment further in recent months. The case looks to have little merit, however, and has already been dismissed once by the Lesotho courts. Turning to valuation possibilities, once the fund-raising completes, the market capitalisation will be just under £50m. Before the funding issues that have weighed on the stock this last 12 months, the company’s shares were valued at 60p and which equated to a market capitalisation of nearly £200m. Liberum Capital estimated the NPV of the first phase of the Kao mines alone at approx £100m (at current FX rates). Perhaps not a 10 bagger, but certainly potential here for a 3-4 fold rise should diamond prices remain firm.
Namakwa Diamonds chart
July 2012 | www.financial-spread-betting.com | 19