www.diamondcorp.plc.uk
DiamondCorp plc is an emerging diamond producer focused on maximising shareholder value through the development of high margin diamond production assets. The company is incorporated in the UK and the highly prospective diamondiferous regions of South Africa and Botswana are its chosen areas of operation.
DiamondCorp ready to take the historic Lace mine into the next phase of development
DiamondCorp’s (LON:DCP) tweaked plans for the historic Lace Mine in South Africa and updated economics received a cautious welcome this morning.
The share price was up 3 per cent, while the analyst commentary was broadly positive.
The company has altered slightly the way it intends to mine the kimberlite pipe following the completion of bulk sampling at Lace.
It will by-pass the old workings and now aim straight for the lower lying, higher grade “pinkish-brown” volcanistic kimberlite.
“This essentially makes Lace a new mine operation as opposed to a rehabilitation project,” said Christopher Welch of Ocean Equities.
This means the capital costs rise to £11.4 million from an estimated £8.9 million to £11.3 million outlined in June.
However there is a kicker in that the kimberlite is thought to be around 50 per cent wider at these deeper levels.
Even with these minor amendments, the economics of the project look sound, based on a diamond price of US$160 a carat.
The mine’s life is expected to be more than 25 years, a period in which it will generate cashflow of £480 million. This gives the project a net present value of £117 million.
“This is an important milestone in the development of the Lace Mine. After funding of £11.4 million, the mine is expected to be largely self-funding from production,” said Ryan Long, analyst at Northland Capital Partners.
“The requirement for funding is well known to the market and the bulk sampling programme appears to confirm the project value with a potential internal rate of return of 78 per cent.”
At 26 carats per hundred tonnes the grade at Lace has exceeded expectations, and so has the quality of the stones.
More than 80 per cent of the diamonds by weight are gem quality and 37 per cent are larger than one-third of a carat.
The largest gem diamond recovered was 20.58 carats, while a 1.01 carat pink diamond was also unearthed.
Chief executive Paul Loudon said: “We are delighted that the effort and challenges in opening up and sampling an old kimberlite mine has been rewarded with diamond quality exceeding expectations and that the potential cashflows are now anticipated to be significantly higher than originally thought.
“Not only is the grade and carat value better than anticipated, the pipe also appears to be getting larger at depth.”
The new development option will see the DiamondCorp establish an initial block cave at the 34 level, some 10 metres below any previous development.
This will be mined for two-and-a-half years, while a second cave on the 44 level will provide a further five years worth of high quality kimberlite.
This will then be replicated in 100 metre blocks to the 84 level, or a depth of 840 metres, accessing a total of 28 million tonnes of kimberlite over a 25 year period.
It is expected to take 19 months to bring the mine into full production.
At midday, the shares were changing hands at 7.95 pence, up 0.22 pence. However City firm Fairfax reckons this significantly undervalues DiamondCorp and its prospects.
“Based on the projections presented in June our value for the share was 28 pence providing significant upside from here,” the broker said in a note to clients this morning.
“With both grades and values revised upwards this provides even further scope and cushion in the valuation of the shares.”
The Lace diamond mine is located 25 kilometres northwest of the town of Kroonstad within the Free State Province of South Africa and operated from 1896 to 1931.
According to mine records it produced 700,000 carats from 4.5 million tonnes of kimberlite at a recovered grade of 16 carats per hundred tonnes.
The production was reported to be high quality, white diamonds, with the biggest stones recorded being 122 and 86 carats.
The kimberlite was mined by open pit to 100 metres, then by underground methods to 240 metres.
The mine was then kept dewatered until 1939, when it was acquired by De Beers, which kept it shut.
It was acquired by DiamondCorp and its black economic empowerment partners, Shanduka Resources and Sphere Investments, in 2006.
