Andrew Regan Interview

What attracted you to this sector?

Our investment team had started looking for potential investments in South Africa for our investment company there, Corvus Capital (SA), looking across a number of sectors including natural resources, in producing assets rather than exploration assets, financial services, and real estate. As a result of that process our team came in contact with the owners of the LRU (Laser Recovery Unit) technology which had been developed over the last five years by a South African company, PSP. After an extensive due diligence exercise over a number of months it was clear that the technology had significant commercial potential - it could process diamond bearing gravel, known as run of mine, significantly faster, more accurately and more cost-effectively than currently available sorting technologies. This is also supported by a study on the LRU technology by international experts in the mining sector Venmyn.

How did you get entry to the sector?

Corvus now owns 17 per cent of DiamondTech, a quoted company on the London Stock Exchange's AIM. DiamondTech recently acquired the LRU technology, buying Earlyworx which owns 81 per cent. PSP, which in turn owns the intellectual property rights to the LRU. DiamondTech's goal is to commercialise the LRU technology and it's already entered into it's first revenue sharing agreement with holders of mineral rights in South Africa. The next stage will be to add further joint ventures in South Africa and in other key mining territories around the world.

What are the commercial drivers behind the diamond market today?

Well it's interesting because according to DiamondTech's listing particulars the value of total world production of rough diamonds was valued in 2005 at US$13 billion, an increase from US$10.8 billion in 2004 and US$9.4 billion in 2003.
It's significant that the global increase in the demand for diamonds has primarily been driven by increased demand for luxury products, particularly from China and India. Demand for smaller diamonds (less than 2mm), for which the LRU technology is particularly suited to process, has increased significantly in recent years due primarily to demand in India where cluster arrangements using smaller stones are particularly popular. The price of diamonds is rising as a result of this increased demand and limited supply due to the number of diamond mines reaching maturity and the absence of major new mine discoveries. Between 2003 and 2005 diamond prices rose by over 50 per cent. Whilst that isn't an absolute guide on future trends the directors of DiamondTech believe that it is likely that prices will continue to rise for the foreseeable future as a result of this contracting supply.

How does DiamondTech intend to commercialise the LRU technology?

DiamondTech could take a number of routes to commercialise its technology and its chosen to maximise profits by entering into processing and sorting contracts in the form of revenue or profit share arrangements with mineral rights holders. This involves deploying LRU processing units directly on diamond mining sites and enabling the company to participate in the profits generated from the resource itself. This strategy could also include leasing the LRU technology to mining operators based on a set fee and revenue and profit share arrangement. The key advantages of this approach are:

• No large capital outlay to obtain access to mineral reserves other than the cost of manufacturing the LRU systems;
• Potential to access a larger number of resources in a shorter timescale and thus take advantage of the many opportunities fast becoming available given the strong demand for diamonds;
• Limited exploration expenditure nor the need to finance the acquisition of mining licences; and
• If an individual site proves to be uneconomic the mobile LRUs can be deployed on more promising prospects.

Andrew Regan
Chief Executive
Corvus Capital Inc