Diamondcorp says "significant" number of lenders interested in financing Lace

South Africa-based diamond miner DiamondCorp (LON:DCP) is hopeful of arranging debt finance for nearly all the cost of developing its Lace diamond mine after talks with possible lenders.

Indicative terms suggested meant equity dilution for existing shareholders could be minimised, it added.

SRK Consulting is working on the Independent Engineering Report required to secure debt  finance, with delivery scheduled for next month.

Paul Loudon, chief executive, said: “Few new long-life kimberlite mines are in the planning, in a market where end users are scrambling to secure supply. For this reason, we have a significant number of debt providers interested in committing development finance for the Lace mine.”

He said that the options included partial debt financing and convertible structures, to complete debt financing and off-take agreements with a decision on the route to be taken likely after SRK delivers its engineering report.

The miner added that new geological work on Lace had also suggested level 47 would be the optimal place for the development, some 130 metres deeper than originally planned.

Starting at this level will mean 12 million tonnes of kimberlite will be mined in the first block rather than 6.5 million tonnes, which DiamondCorp said would bring out higher grade,  more valuable kimberlite earlier into the mine plan.

These will mean higher margins and stronger cashflow.

Initial diamond production is estimated at more than 400,000 carats per annum and operating margins in excess of 65 per cent.

At this production rate and current diamond prices of $160/ct, initial annual revenue would be in excess of US$60 million, the miner said.

Starting deeper will be more expensive, with a block cave on the 47 Level estimated to cost R450 million ($58 million) or 10 per cent more than the previous mine plan.

But during the 33 months to full production, revenues will be 127% higher at R432 million ($55 million) due to diamonds recovered from the undercut, initial caving and tailings retreatment, as well as sale of waste rock.

Loundon added; “The increased depth for the first block cave results in a far more robust mining project, as bringing the higher grade kimberlite earlier into the mine plan has a very positive impact on cashflow.”

The maximum cash drawdown during development is estimated at approximately R250 million (US$32 million) with almost all the development capital repaid by month 33 when caving reaches the 4,000 tonnes per day full production rate.

DiamondCorp added that underground drilling has confirmed the presence of a bulge in the Lace kimberlite between the 24 Levels and the 33 Level.

At Level 33 the kimberlite pipe is 50 per cent greater than at Level 24 and DiamondCorp is investigating if it can mine this area early using the rim mining method adopted by De Beers at two its mines.