Americas Diamond Corp (OTC:ADMC) And Their Pointless Endeavours

Diamond production has been one of those very few businesses where profits are more or less a guarantee. The managers of Americas Diamond Corp (OTC:ADMC) are seemingly well aware of that and they have undertaken a task of special magnificence, i.e to produce and trade with diamonds. Needless to say, this task has easily become the leitmotif of the most recent non-paid trade alert on the stock. What this free email touting the stock fails to mention, however, are the fairly complicated rules regulating the production of diamonds in Venezuela.

If you take a look at Contrarian Press’s alert on ADMC, you will learn that the company holds a stake in what has been branded as Venezuela’s ‘most prolific diamond area’. So far, so good. What you will not understand by merely reading this text, however, is the fact that trading with Venezuelan diamonds is much easier said than than. Okay, it might actually be relatively easy depending upon how easy it is to flout the rules imposed by the local government. Let us go into further detail about that.

Just like the oil industry is mostly governed by the OPEC, the giamond industry is currently administered by the so called Kimberley Process Certification Scheme. The latter was introduced in 2000 by the United Nations General Assembly and it sets out the requirements for controlling rough diamond production and trade. To put it simply, the scheme is aimed at preventing the proceeds from going into the hands of wrong recipients such as rebel movements. Of course, membership in the scheme is voluntary and Venezuela has not joined it yet. Nevertheless, ADMC has yet another obstacle to cope with – Venezuela has voluntarily suspended exports and imports of rough diamonds until further notice.

So, in the best-case scenario, ADMC will have to explore its properties for potential deposits of diamonds, start mining them and invent ways to get them out of the country somehow. Does the company seem ready to go that route?

Jundging from a fundamentals’ point of view, the answer is a resounding no. ADMC emerged barely three years ago as Impact Explorations Inc. and only changed its name to Americas Diamond Corp. last October. As of Oct. 31, 2012, ADMC‘s assets were solely comprised by the $4,542 in its bank account. What about the $5 million of external capital recently acquired by the company? The good news is that it does not include any debt financing as ADMC simply does not have the money to pay off the loan. The bad news, however, is that it will include equity financing, which will impose a heavy burden on current shareholders. Remember the 5-for-1 forward stock split executed at roughly the same time as the company name change? Well, it wasn’t made out of curiosity.