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Paragon Diamonds takes step closer to production at Lemphane

Last updated: 14:46 25 Nov 2014 GMT, First published: 15:46 25 Nov 2014 GMT

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--Adds  additional comment from chairman--

Paragon Diamonds (LON:PRG) revealed it has moved closer to start-up at the Lemphane project, in Lesotho, where stage one mining operations are due to begin in the first quarter of the coming year.

Design and order plans have now been finalised for a state-of-the-art diamond processing plant, the company told investors.

Modern technology, using X-rays, and a modular design will mean both capital and operating costs will be reduced, while diamond recoveries are expected to be improved.

This will result in a significant enhancement to the Lemphane project's economics, Paragon said.

Paragon chairman Philip Falzon Sant Manduca points out that Lemphane is the last undeveloped large kimberlite pipe in Lesotho, and as a 'last mover' Paragon has the advantage of evaluating the various techniques and technologies employed on other projects.

"We have cherry-picked the best-in-class X-Ray technology for our plant, which not only lowers our forecast operating costs but also maximises the recovery rates of large high value stones at Lemphane," he said in a statement.

Manduca added: "From the outset, Lemphane's company-making credentials have always been clear to me.

"By potentially providing a source of large, high value diamonds, Lemphane delivers a strong platform from which we can build Paragon into a vertically integrated diamond house, with material interests in upstream and downstream activities to capture as much value as possible for our shareholders."

Speaking to Proactive Investors, Manduca, who is also the chief executive officer of Titanium Capital Investments, said: "Paragon Diamonds now has the right people with the right skills set managing costs and making sure the plant is absolutely fit for purpose."

The plant will cost US$6mln and it will be able to process 75 tonnes per hour - which equates to 0.5mln tonnes per year. It is expected to maximise recovery of larger high value stones and minimise breakages.

Using this technology is also expected to enhance the subsequent phases of mine development, with lower capex anticipated when it is applied to a full-scale operation (to process 3mln tonnes per year).

Paragon said it intends to compile a new upgraded pre-feasibility study for the project in due course.

This will be based on open-pit mining of 48mln tonnes, and it will incorporate the latest improvements to capital and operating costs resulting from enhancements such as X-ray assisted processing and the planned connection to Lesotho's power grid next as anticipated next year.

In the meantime Paragon continues efforts to secure project financing, and the company says it is "highly focused" on prioritising debt structures rather than equity.

Titanium Capital Investments is acting as assuror in regard to the pre-ordering costs of the new processing plant though the purchase remains conditional upon Paragon securing financing.

It is anticipated that the plant will be commissioned in time for the start of stage one production in 2015.

Through the first stage of production Paragon plans to extract 1mln tonnes of kimberlite over two years. It is forecast that this will yield more than 100 diamonds larger than nine carats, including some stones in excess of 100 carats.

Overall the company targets the recovery of 20,000 carats during stage one, with an estimated minimum value per carat of US$930. As such it expects to generate more than US$9mln per year, and that cash will be reinvested into the full-scale mine development.

Peak production during stage two operations is expected to yield 65,000 carats of high value diamonds per year.

Paragon owns an 80% stake in Lemphane.

Shares rose 7.84% to 5.5p. 

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