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Diamcor Mining: Long-Term Water Use License Is Model Altering

|About: Diamcor Mining Inc. (DMIFF)

Summary

Diamcor Mining has secured its long-awaited Long-Term Water Use license; it was granted access to all requested items within its application.

Those who have followed the Diamcor story know that access to water has been the single largest factor limiting operational leverage since inception.

This major milestone behind it, expect Diamcor to announce a formal production decision in the immediate-term.

Diamcor should post marked improvements to rough diamond count, price per carat, and rough diamond inventory on hand as a result of its WUL.

Expect these to further improve already impressive cash flow statement and incomes statement optics.

Diamcor Mining (OTCQB:DMIFF) - a pre-production junior diamond mining company - is out with model altering news that it has secured a long-awaited Long-Term Water Use license. The South African Department of Water and Sanitation (the "DWAS") finally granted Diamcor a solution into what has been the single largest, single most identifiable headwind to the junior minor realizing full operating leverage of its state of the art facilities - access to water. With approved access to all requested items within its application I now expect Diamcor to announce a formal production decision over the immediate-term. I'll explain all.

While I never doubted Diamcor's eventual access to water I wasn't quite sure of the eventual timing of the approval given that a regulatory body was involved and given that Diamcor was already operating at something of an efficiency even without water. While I never try to directly speculate as to what the "human element" will bring into a scenario that is already uncertain (think an FDA panel during PDUFA or Phase approval processes) I did think that Diamcor not needing water to 1) be operational and 2) be near cash flow breakeven might have actually factored negatively into approval timelines. For what is the rush on water approval if Diamcor didn't absolutely need it to survive? I'm glad I was wrong in this fear-based assumption; Diamcor was able to secure its WUL well-within the timeline I've detailed for readers since initiating coverage of my "microcap pick for 2016".

That said, now with water, expect Diamcor to really ramp up operations in scale and efficiency. As noted above, Diamcor was already operating quite efficiently(all things considered) and this has been reflected in ever-improving financials since the current stage of scale up reached completion (these become even more apparent on a TTM basis). Now, however, with complete, open-architecture optionality when it comes to usage of the facilities at the Krone-Endora at Venetia Project expect Diamcor to see substantial production volume and production mix increases.

Diamcor should now have the capacity to sort its full range of size fractions allowed via its installation of its Tomra XRT sorting system; to which it has already seen early returns from (although this newly online capacity was only experienced in limited use because of the timing of the brining online into operations). Diamcor now positions itself to run its operations at max capacity using max leverage of technologies tethered to the state of the art facility - again, this is what the company has been setting up for since applying for its WUL. I expect marked increases to rough diamond count, price per carat, rough diamond inventory on hand, and a continued overall optical improvement of the income and cash flow statements as a result of all of the above. I think the days of Diamcor being below cash flow breakeven are now gone (this will take several quarters for TTM calculations to "catch-up" to "new model" economics). I also - maybe most importantly - expect Diamcor to be one to two quarters from making a formal production decision. This will be an easily recognized market milestone which, I believe, should have institutional investors familiar with the space paying much, much more attention to Diamcor.

I continue to believe Diamcor to be a significantly derisked story worth investing.

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.