It’s been swift work, but Tango Mining (CVE:TGV) has managed to turn around a preliminary economic study for the BK11 kimberlite pipe in Botswana just a few short months after agreeing terms for its acquisition from former owner Firestone Diamonds (LON:FDI).
Those terms have now been amended somewhat, and the date for full settlement put back till next year, but while that’s been going on the meantime the economics of the project have been confirmed.
Tango’s PEA shows the BK11 pipe to have a net present value of US$40mln at an 8% discount rate and excluding the overall US$8.8mln acquisition costs.
The cost to build the project is likely to be a modest US$15mln.
With production likely to run at an average of 90,000 carats of diamonds per year in the early years of a planned seven year life, the internal rate of return works out at a highly attractive 43%, including acquisition costs.
With those numbers in the bag, Tango can now turn towards the serious business of raising the capital necessary to complete the deal, specifically US$7.65mln still outstanding, plus the maintenance charges for the property, estimated at around US$40,000 per month.
The company also needs the relevant approvals from the government of Botswana and the Toronto stock exchange, although at this stage these should be relatively straightforward.
It all adds up to a project that presents a compelling case for development.
Diamond valuation experts have placed a conservative value on the stones likely to come from BK11 at around US$260 per carat, with an upside case that reaches up to US$285.
The diamonds are good quality white stones that should be fairly easy to sell.
In all, Tango expects at this stage that BK11 will generate revenues of around US$188mln, with each tonne of rock costing US$10.80 to mine and generating revenue of over US$20.00.
So the margins are clearly there, helped along by the high quality of the local infrastructure and the general, and widely accepted attractiveness of Botswana as a mining jurisdiction.
What’s more, the operations at BK11 come with US$45mln in tax losses, so in the early years the company will be able to retain a greater share of profits.
Tango also has the requisite expertise in place to bring BK11 into production, and given that the project is what is known in the jargon as a “brownfields” site, environmental and other permitting shouldn’t be too onerous a process.
After all, this is a country that was built on diamond production, that knows diamonds, and is highly influential in the diamond industry.
They do things properly in Botswana, but they will certainly not want to discourage a new mine from getting into production.