broker note, dwyka diamonds, 07/03/2007 (montagu)

8/15/2019 Broker Note, Dwyka Diamonds, 07/03/2007 (Montagu)

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Dwyka Diamonds Limited(ASX Code: DWY, AIM Code: DWY)

PRINCIPAL OBJECTIVE: Dwyka Diamonds has recentlyannounced a diversified growth strategy which willnow see the Company broaden its asset base frompurely diamonds into other key commodities. As partof the new focus the Company will change its name toDwyka Resources Limited.

Dwyka now has four cash generating diamond projectsincluding its De Beers Tailings Retreatment Project,the Newlands and Blaauwbosch underground diamondmines and the Industrial Products business whichmanufactures bricks and building materials in theNorthern Cape.

The Company has recently announced that it hasacquired the Muremera Nickel Project in Burundi,which is located 2km from Kabanga, one of the largestundeveloped nickel sulphide deposits in Africa.

The Muremera Nickel Project, which has been subjectto significant United Nations funded exploration, hason it several identified geophysical anomalies andtargets believed to be generated from buriedsulphides. The identified anomalies are consideredsimilar in character to the Kabanga nickel sulphidesignature.

The acquisition has attracted funding support ofindustry major BHP Billiton in a recently announced

joint venture over the Project whereby BHP Billiton,in stages, is earning up to 50% interest in the projectby expending up to US$5.2 million.

Management has a track record of making good dealsthroughout Africa and developing strong relationshipswith major mining houses in the region.

Key Investment Points

7th March 2007

ACQUISITION OF HIGHLY PROSPECTIVE AFRICAN NICKEL ASSETS MARKS THE START OF A

GROWTH STRATEGY OF DIVERSIFICATION AWAY FROM THE CORE BUSINESS OF DIAMONDSNote: Investment in shares of Dwyka Diamonds Limited should be considered Speculative. Investors should seek appropriate advice beforemaking a decision to invest in Dwyka Diamonds Limited (see page 4).

Current ASX Capital Structure

Price of Ordinary Shares (cents) 42

No of Ordinary Shares on Issue (million)* 100.2

12 Month Price Range of Ordinary Shares (cents) 38.0 94.5

No of Options (unlisted) on Issue (million)** 2.5

Market Capitalisation ($ million) 42.1

Current Cash Position (Est.$ million) 2.0

Top 5 shareholders currently hold 31.6% of total issued capital.

Top 5 Shareholders: (22/2/07): Chase Nominees Limited (9.46%), MellonNominees (UK) Limited (6.72%), Allerton Horizon Limited (6.46%),Pershing Keen (4.53%), Simpson Financial Limited (4.43%).

Directors:Ms. Melissa Sturgess (Chairperson)Mr. Adrian Griffin (CEO)Mr. Mike Langoulant (CFO)Mr. Ed Nealon (Non Executive Director)

Dr. Evan Kirby (Non Executive Director)

*The Company has advised in a recent announcement that it isundertaking a Share Purchase Plan (SPP) and placement to a total valueof A$5million. These additional shares have not been taken intoaccount on this table.

COMPANYRESEARCHRECOMMENDATION: ACCUMULATE

Project Locations

DRAFT REPORT

NOT FOR

DISTRIBUTION

Montagu Stockbrokers Pty LtdLevel 2, 37 St Georges Terrace, Perth WA 6000 PO Box Z5005, Perth St Georges Terrace, WA 6831

T 61 8 9225 2800 F 61 8 9325 4311 www.montagu.com.au ABN 46 009 368 432A Participant of ASX Group AFSL No. 238333

New Acquisition: MuremeraNickel Project, Burundi

Source:Iress


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Dwyka Diamonds Limited (the Company) is a predominantly Africanfocused resource company listed on the ASX since December 2000.The Company, subsequently in December 2001, successfully listed onthe London Alternative Investment Market. Since listing theCompany has concentrated exploration on a number of advanceddiamond properties in South Africa and Tanzania and over time hasbuilt up a strong portfolio of diamond producing assets.

These assets include production of diamonds from a diamond tailings

retreatment project with De Beers, as well as production from threehard rock kimberlite diamond mines (Blaauwbosch, Newlands andNew Elands) and production from the Nooitgedacht Alluvial DiamondMine.

The cash flows from these projects are now expected to buildsteadily over the coming months and years and as a result the Boardof Directors have considered it timely to seek other resourcesopportunities, to provide other growth opportunities for theCompany.

Recognising the current ongoing strength in the nickel market andtaking advantage of what is believed to be an outstanding strategicacquisition opportunity, the Company has acquired the rights to

explore the Muremera Nickel Project in Burundi, Central EastAfrica.

The Companys acquisition has immediately attracted the interest ofBHP Billiton who through a Joint Venture agreement will assist withfunding planned exploration discussed below.

Muremera Nickel Project (DWY 100% via Danyland Limited)

The Muremera exploration licence is located within 2km of Barrick &

XStratas giant Kabanga Nickel Project, believed to be one ofAfricas largest undeveloped nickel sulphide deposits, with currentindicated resources of 9.7 million tonnes grading 2.37% nickel and atotal estimated inferred resource of 36.3 million tonnes grading 2.8%nickel.

The Kabanga deposit, which is located immediately across theborder in Tanzania, was discovered by drilling after geophysicalprospecting by the United Nations Development Programme(UNDP), in 1976. Further UNDP surveys undertaken in 1978resulted in the discovery of the highly prospective Muremeraanomalies located on the Burundi side of the border.

The anomalies showing similar characteristics to Kabanga. In

addition, follow up work undertaken by UNDP has confirmed thatmassive sulphide bodies, potentially with nickel mineralisation, arethe source of the anomalies. Extensive geophysics and geochemicalsurveys have delineated numerous targets requiring immediate drilltesting, however the absence of any drilling to date has resulted inthe previous owners being unable to confirm and establish any formof resources at the project.

BHP Billiton Earn-in Details

BHP Billiton has agreed to spend US$5.2 million on the Muremeranickel project in Burundi in order to earn a shareholding of up to50% in Danyland which holds the exploration rights for nickel andassociated minerals in the Muremera target.

Under the Agreement, BHP Billitons investment will be undertakenin 3 stages as follows:

At Stage 1, BHP Billiton will invest US$1.2 million on initialexploration activities in order to earn a 10% equity in Danyland;

At Stage 2, BHP Billiton will invest US$2,000,000 on target testingin order to earn a further 20% equity (total 30%); and;

At Stage 3, BHP Billiton will invest a further US$2,000,000 onresource definition and the completion of a concept study in orderto earn the remaining 20% equity (up to a total of 50% interest inDanyland).

BHP Billiton has retained the rights withdraw from the Projectduring or after completion of any of the stages, but if it withdrawsduring a particular stage it retains only the equity earned by virtueof having completed the previous stage. The project will bemanaged by the Danyland board of directors on which Dwyka andBHP Billiton will have equal representation.

Upon BHP Billiton fully satisfying its earn-in obligations, the partieswill contribute to further development of the Project in proportionto their percentage shareholdings in Danyland. Normal default anddilution provisions apply where a party fails to meet its share ofproject funding.

We view the new acquisition and joint venture favourably andbelieve it provides the company with exposure to significant upsideupon exploration success.

De Beers Tailings Retreatment Project (DWY 40%)

Mining in and around the Kimberley township since 1888 by De Beershas resulted in the creation of vast mine dumps, the material ofwhich was only coarsely crushed. This has created the opportunityto recover further diamonds from tailings reprocessing. TheCompany and its Black Empowerment partner has negotiated withDe Beers to allow the processing of approximately 80,000 tonnes permonth of tailings. Revenue is derived by sharing the profits fromsales of produced diamonds at pre agreed prices minus operating

costs.

Nooitedacht Alluvial Diamond Mine (DWY 70%)

Located 15km northwest of Kimberley The project covering 4,671kmextends for 6km along the eastern bank of the Vaal River. Theproperty prior to Dwyka's acquisition was mined by contract diggersunder a licence arrangement with De Beers. The Project boastssome very large diamond finds including the Largest alluvialDiamond ever recovered in South Africa (Ventnor Stone at 511carats) two plus 300 carat stones and fourteen 100 carat stones.The property currently yielding approximately 0.72chpt continues toyield some large stones.

Newlands Kimberlite Diamond Mine (DWY 70%)Located 60km northwest of Kimberley 0n the Harts River. Theproject consists of five kimberlite blows occurring on two northeaststriking fissures.

The Company purchased the mine in April 2005, modified theprocessing plant and starting treating ore from tailings andunderground by August 2005. In 2006 the operations were expandedto two shifts (24 hours) . The company envisages and is nowachieving a target of 10,000tonnes of ore per quarter processed.

In its latest quarterly Dwyka reported production was on target with7,920 tonnes of underground ore had been processed recovering954.27carats at an average grade of 12.04cpht. We note a significant

amount of large stones reported including: seven stones rangingfrom 7.20 carats to 3.81 carats.

A further 3,810 tonnes of old pre-Dwyka tailings were alsoreprocessed recovering 352.42 carats averaging 9.24cht with a 9.49carat and a 3.36 carat stone amongst the recovered diamonds fromtailings.

Overview of the South African Diamond Portfolio

Muremera Nickel Project Bringing Diversification

Company Background


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Blaauwbosch Kimberlite Diamond Mine (DWY 70%)

Located 90km east of Kimberley in the Borshoff diamond province.

The mine history of produced 967,000 tonnes of ore yielding338,000 carats at an average grade of 34.95 cpht before floodingcaused the closure of the operations in 1967 which by then miningwas at a depth of 110 metres.

The mine was purchased by Dwyka in April 2005. By Septemberreprocessing of tailings had commenced. Following a short periodof underground mine production the shaft was deepened (now at225metres and the plant redesigned for better efficiency. InMarch 2006 the main Kimberite pipe was intersected by workings.

Dwyka's management envisage full production will eventually bearound 10,000 tpm by April 2007. The first ore blocks wereblasted and hauled to surface in January 2007 following an periodof mine development.

During the December quarter 7,609 tonnes of ore was minedyielding 1,015.99 carats at an average grade of 13.35cpht. Wenote the recovery of 22 stones ranging in size from 6.38 carats to3.16 carats. In addition a further 5,546 tonnes of old tailings wereprocessed yielding 267.54 carats at a grade of 4.82cpht.

New Elands Kimberlite Diamond Mine (DWY 70%)

Located 90km northeast of Kimberley in the Borshoff District, FreeState. Historical production has yielded 1.5 million tonnes for464,000 carats at an estimated high grade of 34.24 cpht.Following acquisition under option in 2004 the Company plans torehabilitate the existing well preserved workings once theBlaaubosch and Newlands mines are in full production. Currentlysome small production is underway from tailings reprocessing.

Dwyka also has a 70% stake in a profitable industrial division in the

Northern Cape on South Africa which comprises of two brandsSupermix and Biz Afrika which supply paving stone, bricks,concrete and other building materials to the building industry.The remaining 30% stake is owned by the Companys BlackEmpowerment Partner Kolong Investments.

In the December quarter the division reported a solid quarter withbrick and concrete sales up to R5,121,943 (~A$0.9 million) withthe Company's brick plant having to implement a second shift dueto strong demand for bricks.

In October 2005 the Company announced a Joint Venture hadbeen signed with De Beers to explore two known diamondiferouskimberlite pipes named Mahene and Itanana located in NzegaDistrict of Tanzania.

Mahene Kimberlite (DWY 90% De Beers 10%)

Covering an area of approximately 6.8hectares the Mahenekimberlite pipe is the largest pipe on Dwkyas inventory presently.De Beers previously drilled and bulk sampled (53 tonnes) of thekimberlite returning a grade of 8cpht. Dwyka point out that this iscomparable to the grades mined by De Beers at the nearbyWilliamson mine. Some test work has suggested that the grade ofthe pipe could be in places as high as 26cpht and that larger

stones have yet to be discovered. Dwyka plans to bulk sample anadditional 100,000 tonnes to assess the economic potential of thepipe.

Itanana Kimberlite (DWY 90%, De Beers 10%)

Smaller than the Mahene pipe the nearby Itanana Pipe isapproximately 2.3 hectares in diameter. Limited sampling by DeBeers has indicated a grade of 3cpht but microdiamond worksuggests that the grade mat be nearer 8 cpht i.e. similar to theWilliamson Mine. The pipe will be further sampled when theresults of the Mahene pipe are assessed and realised.

In November 2002 Dwyka signed an agreement with BHP Billiton toexplore for hard rock diamond deposits in India. The alliancecovers approximately 55,000km2 of BHP Billiton tenements whichBHP had spent 2 years acquiring.

India has been known for centuries as a world class leader inhosting high quality large diamonds. Examples of large stone

include Kohinoor 793 carats, Great Moghul 787 carats, Regent 410carats and the Orloff Stone 189 carats. All of Indias productionhas been derived from alluvial deposits the majority of which arein the Krishna River of central and southern India. However thehard rock sources to these diamonds have never been discovered.

Recently Rio Tinto also active in the region announced it haddiscovered three kimberlite pipes within 70km of Dwykas and BHPBillitons tenements at Bunder, Madhya and Pradesh.

The JV partners are very encouraged by these new discoveries andare continuing with exploration test work which indicateskimberlites are present in the areas of interest. We await furthernews on what we believe to be very exiting frontier exploration,

which if successful, could have significant upside for Dwykasshare price.

South African Industrial Minerals Division

Overview of the Tanzanian Diamond Assets

Overview of the Indian Diamond Assets


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Disclosure Disclaimer & Warning

Disclaimer

The author of this publication, Montagu Stockbrokers Pty Limited ABN 46 009 368 432 (Montagu), its Directors and their Associates fromtime to time may hold shares in the securities mentioned in this research document and therefore may benefit from any increase in theprice of those securities. Montagu and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result oftransactions arising from any advice mentioned in publications to clients.

Montagu does not provide corporate advice to Dwyka Diamonds Limited. Montagu has agreed to conditionally underwrite Dwyka Diamonds$5.0 million share purchase plan announced on 17th January 2007. Montagu will receive a fee for preparation of this report.

Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without firstconsulting your Adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particularneeds.

Montagu believes that any information or advice (including any financial product advice) contained in this document is accurate whenissued. However, Montagu does not warrant its accuracy or reliability. Any opinions, forecasts or recommendations reflects the judgmentand assumptions of Montagu as at the date of publication and may change without notice. Montagu, its officers, agents and employeesexclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extentpermitted by law.

A Participant of the ASX Group

Director Profiles and Key Personnel

Ms. Melissa Sturgess, Executive Chairperson BSc, MBA

Ms. Sturgess, who was appointed to the Dwyka board in April2001, became an Executive Director in November 2002. In June

2003, she was appointed to the position of Chief ExecutiveOfficer of the Company, and in June 2005 became its Chairman.Ms. Sturgess, who holds a Bachelor of Science degree and an MBAfrom The University of Western Australia, began her career withBritish Airways before moving on to law firm Mallesons StephenJaques. Having founded her own consultancy in 1994, Ms.Sturgess has been actively involved in the corporate developmentof a range of public companies.

Mr. Adrian Griffin, Chief Executive Officer BSc

Mr. Griffin, who graduated from the University of Melbourne in1975 with majors in geology and metallurgy, was appointed tothe board of Dwyka in December 2005. With 30 years experiencein the mining industry, his responsibilities during that time have

included exploration, feasibility studies, financing and thedevelopment of a wide range of commodities. Mr. Griffinsexposure to the industry worldwide includes professionalinvolvement in Africa, Asia, Eastern Europe, Australia andAntarctica. He has been instrumental in the development ofoperations that have explored for and produced a range ofcommodities, among them gemstones, iron ore, base metals,mineral sands, platinum group metals and gold.

Mr. Ed. Nealon, NonExecutive Director BSc

A Director of Dwyka since April 2000, Mr. Nealon is a qualified

geologist with 29 years experience in the mining and explorationindustry. Having spent six years in South Africa with Anglo-America Corporation, he moved to Australia in 1980 and spenttwo years involved in exploration with the Rio Tinto Group. In

1983, Mr. Nealon founded his own consulting company and sincethen has practiced in Africa, Australia, the United States andCanada, as well as other regions.

Dr. Evan Kirby, Non Executive Director Phd

Dr Kirby was appointed to the Dwyka board in November 2002. Ametallurgist, he worked in South Africa for 17 years primarilyfor Impala Platinum, Rand Mines and Rustenburg Platinum Minesbefore moving to Australia in 1992. In Australia, Dr Kirby workedfor Minproc Engineers and Bechtel before starting his ownconsulting business a decade later. With his broad experience, hehas been involved in the development of a wide range of miningand minerals processing projects in Africa and Australia, as wellas other parts of the world.

Mr. Mike Langoulant (CFO), Chief Financial Officer CA

Appointed to the Dwyka board in April 2005, Mr. Langoulant is a

chartered accountant with 20 years experience in corporate

administration and fundraising for public companies. Having

spent 10 years with large international accounting firms, during

which time he acted as chief financial officer, company secretary

and non-executive director with a number of publicly listed

companies, Mr. Langoulant established his own consultancy firm

in 1994.

Risks Associated with Investment In Dwyka Diamonds Limited

Potential investors need to be aware that investment in Dwyka Diamonds Limited, like all investments in junior resourcecompanies, is of a highly speculative nature. Normal share market risk conditions apply including commodity prices, currencyfluctuations, sentiment, supply and demand and general economic outlook. Normal exploration, development and productionrisks also apply as well as operating, environmental, and sovereign risks.

Report compiled byIan Spence

BSc. (Joint Hons) Geology & Petroleum Geology, MSc. Mineral Exploration & Mining Geology, MBAResource Consultant

Share Placement Plan To be Conditionally Underwritten By Montagu Stockbrokers

On 17th January 2007 the Company announced its intention to undertake a Share Purchase Plan (SPP) with existing shareholders inaddition to undertaking a placement to a maximum of $5million. Montagu Stockbrokers has conditionally agreed to underwrite theSPP which will enable shareholders to subscribe for up to $5,000 of shares at 31cps equating to a 20% discount to market price.

broker note, dwyka diamonds, 07/03/2007 (montagu)

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