African Diamonds and Lundin backed Lucara to push AK6 ahead after De Beers exits

(Updated 10am, 11 November 2009) The fate of the AK6 diamond project, in the heart of Botswana’s world class Orapa district, took a new twist after it was announced on Wednesday evening (10 November) that Canadian Venture listed diamond junior, Lucara Diamond Corp (TSX-V: LUC)(‘Lucara’) would be acquiring De Beers’ 70% stake in the project for US$49 million.

Lucara is a Toronto listed diamond Company, backed by the highly regarded Lundin Group, a US$10 billion group of 12 oil and mining companies, including African gold producer Red Back Mining and base metals miner Lundin Mining.

AK6 is situated on ground once held by De Beers prior to 2002, and it was through a De Beers / African Diamonds joint-venture that the pipe was discovered in 2004. AK6 currently hosts 51.8 million tonnes (to a depth of 400 meters) at an average grade of 22 carats per hundred tonnes (‘cpht’) at a modelled diamond value of US$151 per carat.

Previous studies commissioned by African Diamonds have estimated Capex of US$63 million to establish the mine at 2 million tonnes a year output, which will produce over 400,000 carats at the modelled grade of 22 carats cpht. According to African Diamonds, a further US$25 million in capital expenditure could double the output of tonnes and carats, and the grade “will be at least 25 cpht”, giving an output of over 1 million carats.

As part of the transaction, London listed African Diamonds (AIM: AFD), who brokered the deal and currently hold 28.381% of AK6, have a 120 day call option to acquire an additional 10.268% interest in consideration for US$7 million (£4.8 million) plus interest at 8% per annum. If African Diamonds exercises the call option, Lucara will retain a 60% stake, with African Diamonds holding 38.65% and Wati Ventures 1.35%.

African Diamonds also have an option to acquire the remaining 1.35% interest from Wati Ventures for US$0.7 million (£0.48 million), which would allow African Diamonds to increase its interest to 40%.

As part of the deal, Lucara will provide a US$2 million convertible loan to African Diamonds to fund their portion of the updated feasibility study and working capital. The loan is convertible into shares of African Diamonds at a conversion price equal to 85% of the 5 day volume weighted average share price prior to the date of conversion. The convertible loan bears interest at 8% and is due within 120 days of demand.

To fund the AK6 acquisition, Lucara has entered into a guarantee and loan facility for the amount of US$49 million. As a condition of the guarantee and loan facility, the lender will receive approximately 12.19 million shares of Lucara, of which 5.2 million are subject to shareholder approval.

Lucara expects the diamond mine to move into production within 18 months as an open pit operation.  It is worth noting that a mining license was awarded to the AK6 project in October 2008, and the Orapa district boasts excellent infrastructure and access to power, water, skilled manpower and paved roads, removing many of the hurdles that mine developers face in many other parts of the world. 

"We believe that AK6 is a world class diamond deposit. It needed to be developed as quickly and efficiently as possible to benefit all stakeholders. This will now happen,” stated John Teeling, Chairman of African Diamonds. “For six years, we partnered with De Beers on AK6 and other projects in Botswana. Together we found a diamond mine but, over time, the needs and aims of African Diamonds diverted from those of De Beers. It was a genuine pleasure and privilege to work with De Beers. An amicable separation is a good outcome.”