Big mining groups, especially in volatile base metals, have been among the heaviest fallers in the great market sell-off. The influence of derivatives and other financial instruments on commodities has scared traders.

However, some smaller companies can still impress. Consider Diamondcorp in the esoteric field of gems, which has taken a £30 million option on fellow South African producer Sonop Diamond Mining.

Floated in February at 90p by Cenkos Securities and run by Australian mining entrepreneur Paul Loudon (who sold BDI Mining to Gem Diamonds for £42 million this year), Diamondcorp raised £4 million to buy the Lace mine in South Africa from local mining figure Christiaan Potgieter. The company suggests Lace could hold up to 14.1 million carats, mostly smallish, clear stones, worth around £125 a carat.

Now, Diamondcorp has done another deal with Potgieter. It has taken an option to buy his Sonop company, South Africa’s largest private alluvial diamond mining concern, in a £30 million shares and cash purchase that would give Potgieter 20 per cent of the enlarged group.

Sonop’s key project is Elsiedrift on the Orange River, which contains large stones worth an average £850 a carat and has an estimated 10-year mine life. If drilling there comes up to expectations by next March, Diamondcorp will exercise its option.

The enlarged group, likely to be renamed Sonop Diamondcorp, could generate annual revenues of £72 million from Lace alone, argues Loudon. With prospects like this, Diamondcorp hopes to fund its Sonop deal with bank finance, although a £2 million equity raising, linked to a Johannesburg listing in October, is on the cards.

The shares, which had drifted to 83.5p in June, have bounced back to 103p, stockmarket slumps notwithstanding. They are not risk-free, but medium-term prospects could be exciting, especially if Lace and Elsiedrift attract acquisitive attention.

Diamondcorp	AIM	£12.98m	35.00p	0.00p
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