Resource Estimation and Valuation of Alluvial Diamond Deposits

Abstract

As a result of multiple issues, alluvial diamond properties are often considered more difficult to evaluate than many other deposit types. This is frequently combined with the perception that only large-scale deposits can be evaluated professionally; that evaluations and, subsequent, valuations of small-medium scale operations are either inherently flawed or cannot be done at all. However, a discussion of resource estimation and valuation methods shows that, despite both real and perceived risks, alluvial diamond projects of all scales can be evaluated to the same international standards in a financially responsible manner. Once the site has been established, bulk-sampling and drilling programmes can be designed to estimate the diamond resources present on the property. It has to be appreciated that, due to the often low, but highly variable, grades and geological inhomogeneity of these deposits, significantly more prospecting may need to be completed to estimate resources when compared with many other commodities, as unsubstantiated assumptions can be misleading. The resource estimation programme is designed to identify the volume of gravel present on the property that may be mineable, the average recoverable grade and the average sales value of the diamonds. This can only be accomplished by the processing of significant volumes of gravel through bulk-sampling. During trial-mining exercises, which are comparable to (pre-) feasibility studies, considerable mining and processing data is obtained—the “modifying factors” required to convert mineral resources to mineral reserves. As with any other commodity, the value of an alluvial diamond deposit changes as market conditions change and according to the amount of information available for the project. Consequently, different valuation approaches will be valid at different stages of the project. Where reserves have been identified, standard Discounted Cash Flow (“DCF”) methods of valuation apply. However, few alluvial diamond deposits get evaluated to this stage and Income-based approaches are not appropriate for properties without mineral resources. By contrast, Cost and Market approaches, which are often used in early stage project valuation, are generally not good indicators of value of alluvial diamond projects either.