Diamcor - Already Seeing The Per-Carat Benefits Of Maturation, Beginning To Stockpile Inventory

| About: Diamcor Mining (DMIFF)

Summary

Diamcor Mining (DMIFF), my microcap pick for 2016, is out with an update on FQ1 rough diamond tender results.

One item of note, when breaking out the monthly totals on a “per-carat” basis, is that there were fairly wide swings in pricing realizations across the 90-day duration.

Diamcor took an additional 148.29 carats of higher quality goods, which were withdrawn from the second tender and sales held in May, to its third tender in June 2016.

In addition to taking a higher quality diamond set to tender Diamcor also took a wider spectrum diamond set to tender.

This wider spectrum diamond set included processed material ranging up to 45mm from a prior tendering of 100% diamond sets of between +1.0mm to -26mm.

Diamcor Mining (OTCQX:DMIFF), my microcap pick for 2016, is out with an update on FQ1 rough diamond tender results. The results of Diamcor's rough diamond tender were in-line with my expectations, for the most part, outside of a few points which I'd like to highlight within this note. The results, which are impressive, are as follows:

3,031.95 carats sold for USD$ 386,992.89 in tender completed in April, 2016 4,789.18 carats sold for USD$ 564,639.06 in tender completed in May, 2016 5,563.59 carats sold for USD$ 954,346.49 in tender completed in June, 2016 13,384.72 carats sold for USD$1,905,978.44 in all tenders completed in fiscal Q1

One item of note, when breaking out the monthly totals on a "per-carat" basis, is that there were fairly wide swings in pricing realizations across the 90-day duration. For instance, pricing per-carat realizations were as follows: April 2016 - average price of USD $127.64 per carat, May 2016 - average price of USD $117.90 per carat, June 2016 - average price of USD $171.53 per carat. To put the volatility into something of context, realize that per-carat pricing showed a ~46% variance from May to June alone. This, the pricing volatility on what are rather short duration periods, is something I've inquired about directly with management and is something I'll report back on after receiving a completed Q&A form (submitted to management just days ago); but ahead of receiving this Q&A there is something of background explanation provided (via the press release).

First, please note that overall pricing in the diamond space - including the rough diamond segment - is depressed [diamonds are trading at cycle lows currently and are at near historic lows (inflation adjusted)]. When commodities trade to cycle lows OR to cycle highs - typically you see increased levels of volatility as pricing levels become more and more polarizing from an investment standpoint. So, some of this volatility should be expected. Second, regarding the volatility printed at per-carat realizations by Diamcor in FQ1 - realize that Diamcor didn't take "comparable" diamond quality sets to auction. I'll explain.

Diamcor took an additional 148.29 carats of higher quality goods, which were withdrawn from the second tender and sales held in May, to its third tender in June 2016. This alone, the bringing of the higher quality diamond sets, is responsible for the majority of the per-carat pricing realization uptick. However, in addition to taking a higher quality diamond set to tender Diamcor also took a wider spectrum diamond set to tender. This wider spectrum diamond set, the direct result of 1) Diamcor's developing operational maturity and 2) the newly installed Tomra XRT, included processed material (but just initial production volumes) ranging up to 45mm from a prior tendering of 100% diamond sets of between +1.0mm to -26mm. This allowed larger size rough diamonds to be tendered which, of course, naturally drives per carat pricing (all things being equal). This too greatly contributed to the volatile, but positively volatile, data coming by way of the June 2016 tender.

It should also be noted that rough diamonds recovered AFTER May 29 andUNTIL June 30, 2016 will be recorded as rough diamond inventory on-hand for the first fiscal quarter ending June 30, 2016. This means that we know that Diamcor is going to be entering its next tenders with an "inventory" of diamonds, diamonds that have already been accounted for on the cost side of the income statement, that are of "higher quality set" and of "wider spectrum set"; which it can use to opportunistically deploy into higher pricing should higher pricing be there for realization. Put simply, Diamcor's first fiscal quarter rough diamond tender and sales of 13,384.72 carats of rough diamonds, which represented a ~469% increase when compared to the 2,856.24 carats tendered and sold in the company's first fiscal quarter ending June 30, 2015, were absent the inventory that the company is carrying over to its next tenders. Yes, those impressive figures are inclusive of the cost accounting for this inventory but not inclusive of the revenue accounting for this inventory. Total gross revenues of USD $1,905,978.44 realized during the fiscal quarter ended June 30, 2016 represented a ~419% increase in gross revenues when compared to USD $455,227.66 reported for the same period in the previous year - yet another productive financial data point for a mining company that is now stockpiling inventory on hand. As Diamcor builds a "reserve" inventory, expect it to be able to smooth out financial realizations (by volume, not by carat specifically) over the next handful of quarters.

Diamcor continues to be one of my favorite microcap names and remains my microcap pick of 2016. I continue to be optimistic about its long-term potential and I continue to be optimistic regarding immediate-term operational developments. Within the next few weeks I'm expecting to have a completed Q&A form, for publication exclusively to Seeking Alpha, from CEO Dean Taylor in which Taylor addresses the questions I find most relevant to the Diamcor story as of just prior this PR being made public. Stay tuned for this Q&A.

Good luck everybody.

Disclosure: I am/we are long DMIFF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.