Wednesday, August 08, 2007

Diamond miner Koidu to turn profit in Sierra Leone

FREETOWN (Reuters) - Four years after starting operations, Sierra Leone's biggest diamond venture Koidu Holdings SA expects to turn its first profit in 2007.

It marks a turnaround for the country's dilapidated but resource-rich eastern region, which bore the brunt of rebel fighting over alluvial "blood diamonds" during the 1991-2002 civil war in which 50,000 people were killed.

During the conflict, official exports fell to zero as smuggling to fund guns and ammunition soared.

On Sunday, Sierra Leone holds its first presidential elections since a U.N. peacekeeping force pulled out in 2005.

"We expect to make a profit of $6 million this year," Koidu Holdings chief executive Jan Joubert told Reuters on Tuesday.

"But we will still have losses carried forward from the previous three years."

In 2006, high operating costs forced a loss of $2.83 million on sales of 112,000 carats for $23.4 million. The company plans in 2007 to mine 190,000 carats, worth $34 million.

Most diamonds in Sierra Leone are found near the surface, washed down by rivers after the rainy season. Diggers pan for days, knee-deep in muddy waters, in the hope of striking lucky.

But Koidu Holdings is the former British colony's only kimberlite diamond operation, focused on extracting the gemstones from rock lined in a natural pipe underground.

It is Sierra Leone's second largest foreign direct investor after UK-listed Titanium Resources Group's rutile and bauxite operations in the south of the country, and employs 80 expatriate workers and about 600 locals.

Koidu Holdings -- 65 percent owned by global private resource group BSG Resources Ltd and 35 percent by Magma Diamond Resources, a subsidiary of Geneva-based Beny Steinmetz Group -- has invested $32 million since operations began in 2003.

In 2006, the company accounted for 16 percent of the value of all diamond exports from Sierra Leone.


Mining takes place at the bottom of the world's deepest vertical diamond pit, extracting the high-quality stones from one of the few exploited kimberlite pipes in the country.

"Pipe 1 should have 15 more years in it, but needs an investment of $22 million spent on underground development alone," said Joubert. "Pipe 2 will come online in June 2008."

He said that after a total investment of $50 million, the two pipes should yield 200,000 carats a year on an average grade of 0.40 carats from each tonne of earth.

Between 2006 and 2015, the company expects to recover diamonds worth $111 million.

Of that, $60 million will go to cash-strapped Sierra Leone through fees and charges, including royalties of 5 percent and a 10 percent profit share for the government and local community once the company is in the black, likely in 3 years' time.

Koidu is also looking to develop its Tongo Fields exploration area, an hour and a half from Freetown, in a diamond-rich area fiercely fought over by rebels during the war.

"It's too early to say but we have high expectations," said Joubert. "We have very limited capacity but obviously that will change once we can bring Tongo online."

Investing | Africa - Reuters.com