This is a case where no news is not good news.
The company has not made any recent news releases. And this is reflected in its share price. Fat Prophets gained exposure to Vaaldium Resources via the takeover of Elkedra Diamonds in November 2007. Our effective entry price for this stock was C$0.779. Our last review was in September (Fat Mining 191).
From a charting perspective, the performance of Vaaldium Resources continues to disappoint. As evident on the daily chart, prices continue to consolidate between the December low of C$0.01 and the May high of C$0.13. The stock is currently trading towards the lower end of this range, in the C$0.04 region.
The weekly chart reveals the depth of the decline since 2007. Considering it will take some time for investor support to turn around, we anticipate a lengthy period of consolidation at the lows, before a new upward trend can emerge. And with little signs of investor support, we believe upside potential is very limited at this stage.
Here is a brief summary from past company announcements.
Candle Lake Diamond Property - Saskatchewan, Canada.
1) This is a 100% owned project.
2) Drilling and geophysics suggests 70-100mt of kimberlite in place.
3) 3D modelling suggests a single volcanic complex.
4) Around 2.4t of drill core has been examined.
5) Over 1,000 micro diamonds have been recovered.
6) 370 macro diamonds have been recovered weighing 14cts.
7) Average size of macro diamonds is only 0.04cts, or 0.008gm.
The results are very significant but no diamonds (+0.5ct) have been reported – this was disappointing. The next step will be bulk sampling and a lot more statistical analysis to try and forecast the probability of larger stones. This a very high risk project and with no guarantee of commercial success.
Brauna Project – Brazil.
1) Five kimberlites bulk tested were diamondiferous.
2) The Brauna-8 dyke tested 42cpht.
3) This was a good result subject to size and quality.
4) Brauna-3 returned 16.3cpht, a satisfactory result.
5) Grades from the other pipes were too low.
Gold Project – Rio Hapicuru Greenstone Belt, Brazil.
1) Good location.
2) Past history of mining by garimperios.
3) Evidence of alluvial mining activity.
4) The greenstone hosts Yamana’s Fazenda Brasileiro Mine.
5) Fazenda is a low grade underground gold mine (2.8g/t).
The company’s ground is prospective for gold but the company is not currently in a financial position to mount a meaningful exploration effort to find a gold deposit.
The global financial crisis destroyed efforts to establish a solid cash flow from diamonds.
The operating loss of the June quarter was C$6.96m, and for 1H09 the operating loss was C$8.5m. The company has a history of accumulating losses that now exceed C$100m.
It was pointed out in the Half Year Report ending June 30, 2009, that the company had a working capital deficit of C$7.8m.
Moreover, following putting its Duas Barras and Chapada diamond mines on care and maintenance, the company does not have a source of operating cash flow.
Diamonds are sometimes a very difficult business for small mines. Kimberlite pipes and dykes are difficult to evaluate because in most cases diamond grades are incredibly low compared with say a gold deposit, so the risk of failure is very high.
Vaaldiam is clearly in a position where it needs to raise capital. This might not be easy and at the moment we see risk stacked against the company. The balance between risk and reward has shifted into negative territory. There are many alternative investments like Chalice Gold (ASX: CHN) which has an exciting gold project in Eritrea.
Accordingly, we are changing our recommendtion from HOLD to SELL for all Members.
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