Diamond exploration in Angola isabout as risky as it gets, but LucapaDiamond Co (Sydney: LOM) is worthkeeping an eye on. The company hasa 3,000 sq km concession in northeast Angola, a vast green landscapeof rivers and swamps. It has beenexploring in the country for more thanseven years, but in the last 18 monthsappears to have zoned in on themotherlode.
Lucapa is currently sifting throughgravel beds on the banks of the Cacuiloriver (this is known as alluvial mining),pumping gravel into a processing plantand pulling out diamonds. In February,Lucapa recovered a 404-caratdiamond, the largest ever found inAngola, which it promptly sold for$16m.
It has also found pink diamondsand Type IIA stones, which are therarest type of diamond found. In total,Lucapa has generated sales of morethan A$50m since it began alluvialproduction last year very respectablefor an exploration-stage company,valued at A$107m.
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Lucapa doubled its mining rates lastyear and plans to double them again,but the chief executive, StephenWetherall, is looking for a much biggerprize: the source of the diamonds itself,known as a kimberlite pipe. Most of thediamonds Lucapa has found have beenrecovered from one area, "MiningBlock 8".
The diamonds have jaggededges and they have also been largeon average, suggesting they have nottravelled far from the original source.Lucapa has done gravity surveys,pointing to a large geological bodydirectly under Block 8. It has shippeda drill rig to Angola and plans to begindrilling immediately.
If the body is a kimberlite pipe, theupside could be enormous. Lucapa'sconcession is in the same postcode asCatoca, one of the biggest diamonddeposits ever found. But the risksare also hefty. Angola is a "highrisk"jurisdiction, says broker ParetoSecurities, after a civil war that endedin 2002.
Under Angolan law, Lucapaonly owns 40% of its mining licence,with renewals due at the end of May.Drilling, meanwhile, is always a lottery but Lucapa is hoping to win big.
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