Management Discussion & Analysis
For the Interim Period Ended December 31, 2021
DIAMCOR MINING INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE INTERIM PERIOD ENDED DECEMBER 31, 2021
Management’s discussion and analysis (“MD&A”) focuses on significant factors and the operating results and financial position of Diamcor Mining Inc. (“Diamcor” or the “Company”) and its subsidiaries. To better understand the MD&A, it should be read in conjunction with the interim unaudited consolidated financial statements and notes thereto for the three-month interim period ended December 31, 2021, and the MD&A and unaudited consolidated financial statements for the three-month interim period ended December 31, 2020. The effective date of this MD&A is February 28, 2022.
The unaudited consolidated financial statements for the interim period ended December 31, 2021 have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Unless otherwise specified, all financial information is presented in Canadian dollars.
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the cautionary notes contained herein.
RECENT AND Q3 2021 HIGHLIGHTS
- Debt was reduced by $3,100,353 in the interim period ended December 31, 2021, primarily due to the conversion of convertible debt, along with continued payments on the Caterpillar equipment financing facility during the period.
- As progress is being made globally to reduce the impacts of the COVID-19 global pandemic, the Company’s focus during the interim period continued to be on maintaining reduced costs, planning for the resumption of increased operational hours, finalizing the phase 1 expansion efforts, and the advancement of its phase 2 expansion efforts to support increased processing volumes for the long-term.
- During the interim quarter, the Company tendered and sold 5,441.88 carats of rough diamonds, generating revenue of (USD) $1,074,748, resulting in an average price of (USD) $197.50 per carat.
- In total, ongoing trial mining exercises at the Company’s Krone-Endora at Venetia project from inception thru December 31, 2021, have resulted in the incidental recovery, tender, and sale of 175,016 carats of rough diamonds generating revenue of (USD) $30,233,805, resulting in an average price of (USD) $172.75 per carat.
- The Company completed the first phase of its announced two-phase expansion efforts aimed at supporting the doubling of the project’s processing capabilities ahead of schedule during the interim period. By December 31, 2021, the Company’s efforts shifted to refining and optimizing the initial expansion items completed, and the advancement of the second phase of the expansions which remain on target for completion by June 30, 2022.
- The management of operational salary and wages expenses, variable operational costs, and historical fixed costs continued to be a focus during the interim period given the continuation of certain COVID-19 restrictions.
- A net loss of $939,916 was recorded for the interim period ended December 31, 2021 ($1,417,881 – 2020), resulting in a $0.01 per share loss. ($0.02 – 2020).
- The Company had 114,661,800 common shares issued and outstanding as at December 31, 2021 and has authorized capital of an unlimited number of shares.
Diamcor Mining Inc. (“Diamcor” or the “Company”) is a junior mining and exploration company incorporated in the Province of British Columbia under the Business Corporations Act (BC). The Company has a proven history of supplying rough diamonds to the world market and its principal focus is the identification, acquisition, exploration, evaluation, operation, and development of unique production focused diamond- based resource properties. The Company established a long-term strategic alliance and secured financing from world famous luxury retailer Tiffany & Co. and is currently developing the Krone-Endora at Venetia project which it acquired from De Beers. Upon successfully acquiring the project, the Company secured a 30-year mining right for an initial target area (657.71 hectares of the project’s total 5,888-hectare area), and the required Water Use License. The Company then significantly advanced the Krone-Endora at Venetia project through the development of extensive infrastructure including the construction of ~60 km of roads, the procurement and development of two large deposit specific processing plants, the installation of ~20km of underground water pipelines and a 13km independent power line, backup power systems, and worker housing. Early in 2020, the Company completed the acquisition of a Caterpillar heavy equipment compliment for the project and continues to advance various other infrastructure items aimed at supporting the further development of the project for both the near and long-term. The collective advancement of all items over a period of years at the project provides the Company with the potential to establish a low-cost surface mining operation. The project’s deposits, and their association with and origins from the adjacent world-famous Venetia deposit, provide the Company with the potential to establish a source of rough diamond supplies consisting of a relatively high percentage of gem and near gem quality with the added benefit of large diamond recovery potential (largest individual rough diamond recovered to date from trial mining exercises – 91.7 carats). The Company’s long-term strategy is to continue to grow its position as a producer and supplier of quality rough diamonds to reputable diamond purchasing entities serving the global diamond market.
The Company’s common shares trade on the TSX Venture Exchange under the symbol “V.DMI”, and on the OTCQB tier in the United States under the symbol “DMIFF”.
CORE BUSINESS AND STRATEGY
Diamcor has an established operating history in South Africa, key strategic relationships within the diamond industry globally, extensive knowledge of various diamond mining opportunities, and as noted, is currently developing the Krone-Endora at Venetia project it acquired from De Beers. The Company’s strategy is to identify, evaluate, acquire, and develop various types of diamond related properties and other mining projects, with a specific focus on opportunities which demonstrate the potential to generate near-term and sustained rough diamond production and/or positive cash flow while minimizing shareholder dilution.
The Company advanced this strategy by acquiring the Krone-Endora at Venetia project from De Beers Consolidated Mines Limited. When acquired, the Krone-Endora at Venetia project consisted of the prospecting rights over the farms Krone 104MS and Endora 66MS with a combined surface area of approximately 5,888 hectares directly adjacent to De Beer’s flagship Venetia Diamond Mine in South Africa. The deposits which occur on the properties of Krone and Endora have been identified by De Beers as both, an upper “colluvial” deposit, as well as a lower / basal “alluvial” deposit, both of which are proposed to have originated from the higher grounds of the adjacent Venetia kimberlites, with the full extent to which these deposits occur over the entire area of the project yet to be determined. De Beers previously completed exploration efforts on an initial area of interest comprised of approximately 310 hectares of the properties, the results of which were reported in an initial Independent National Instrument 43-101 Technical Report (the “Initial Technical Report”) which was filed by the Company in conjunction with the acquisition. The Initial Technical Report provided an inferred resource estimate of 54,258,600 tonnes of diamond bearing gravels, and 1.3 million carats of diamonds for the 310-hectare area of interest in that report. The Initial Technical Report also noted that based on the previous work programs and evaluation completed to date by De Beers and the Company, an estimated 1,000m, or 1 vertical km, of material was shifted and eroded
off the kimberlites of Venetia onto the lower surrounding areas including those of Krone and Endora, with the full extent of the materials deposited on the properties of Krone and Endora yet to be determined, which remains a primary focus of the Company’s efforts currently underway. The Company’s initial efforts have been focused on key areas of interest defined by the previous work and estimates outlined in the Initial Technical Report, and specifically on the K1 area of the project, the establishment of infrastructure and equipment required to support the project for the long-term, the completion of trial mining and bulk sampling efforts to better define the location and extent of material on the Krone and Endora properties, and the finalization of work required to support the filing of an updated Independent National Instrument 43-101 Technical Report (the “Updated Technical Report”) on April 28, 2015. These combined efforts along with the bulk sampling and trial mining efforts underway are aimed at allowing the Company to secure data to aid it in arriving at initial production decisions for the project in the near-term.
In addition to the advancement of the Krone-Endora at Venetia project, the Company continues to review and pursue other mining opportunities in South Africa and other mining regions. The Company believes its strategy will enhance its ability to take advantage of the current trend of declining world-wide production of rough diamonds due to the aging of current diamond mines, and the lack of recent new discoveries. The Company, and many industry experts, also believe this trend presents the potential for increasing prices and demand of higher quality natural rough diamonds from conflict-free sources in the coming years. These forecasted rough diamond price increases are a function of; not only the projected material shortfalls in future diamond production, but also the potential increases in customer demand from developing markets such as China and India, and the restoration of demand in historically strong markets such as the United States. It is widely accepted and documented that many existing larger diamond mines are approaching the later stages of their expected life of mine, and current rough diamond production levels are expected to remain consistent at best, or potentially be reduced in the near future. These dynamics, coupled with the fact that few, if any, large new diamond mines have been identified or developed which demonstrate an ability to meet these projected future increasing demands, along with the fact that long lead times of +/-10 years are typically associated with bringing any large new diamond mine into production. Combined, these elements present a compelling opportunity for companies with the ability to provide rough diamond production in the coming years, and the Company believes it is well positioned to exploit this opportunity.
In March of 2020, the Company was forced to suspend operations due to a Government of South Africa mandated COVID-19 shutdown in South Africa. The Company was able to partially resume operations and planning in October of 2020 with reduced staffing levels and appropriate COVID-19 precautions in place, and has continued to further advance various operational objectives where possible since that time. The Company continues to monitor the global diamond market as well as potential COVID-19 developments which may affect its operations.
KEY PERFORMANCE DRIVERS AND RECENT EVENTS
The primary performance drivers for the Company are: the identification and acquisition of projects which demonstrate potential for near-term diamond production and future growth, with suitable costs and diamond yields, the successful transition of these projects into full scale production, the dynamics of current and future rough diamond market prices for various reasons including the recent events associated with COVID- 19, and the establishment of strategic relationships with reputable purchasing entities of rough diamonds serving global markets.
Historically, the onset of the global financial crisis in 2008 and 2009 had a profound effect on the world economy including the diamond market. At that time, analysts, industry experts, and trade publications reported a softening of diamond prices and short-term demand. Despite this decline in the rough diamond market at that time, industry experts anticipated increasing demand from the emerging markets of China, India, and the Middle East. As of mid-2010 rough diamond prices began to recover and were approaching the previous historical all-time highs experienced prior to the global financial crisis. This trend of steadily
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Diamcor Mining Inc. published this content on 28 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 February 2022 19:00:06 UTC.
Income Statement Evolution