DiamondCorp shares up as firm set to seal US$33.6 million IDC loan by September

Shares in DiamondCorp (LON:DCP) rose today after the firm made a further step towards sealing its loan funding from the IDC to develop its Lace mine in South Africa.

As reported in May this year, the company entered a deal for a loan of 280 million Rand, around US$33.6 million, with the Industrial Development Corporation of South Africa Ltd (IDC), subject to various conditions.

This morning, DiamondCorp told investors the IDC had finished its due diligence and that approval had been granted from power utility Eskom.

These steps mean the final loan agreement is now expected to be fully completed and signed by the middle of September this year.

The cash will be used to develop the underground 1.2 mtpa (million tonnes per annum) mining operation on the 47 Level (470 metres) at the mine.

Traders welcomed the news and shares rose five per cent, to stand at 5.25 pence.

DiamondCorp's chief executive Paul Loudon described himself "very pleased" with the development, adding that following the positive involvement of the IDC, the company had been approached by a number of diamond groups regarding off-take agreements for future Lace production.

He also said that commercial South African banks had come forward looking to work alongside the company and the IDC in providing additional subordinated funding.

Analysts also welcomed today's announcement. Dr Ryan Long, at broker Northland, said: "The IDC facility will reduce the risk of dilution to equity investors and the share price is likely to respond positively."

He rates the shares a 'buy' and targets a price of 15p pence.

The analyst added: "We continue to believe that DiamondCorp’s Lace Mine is likely to become one of the most significant diamond operations to be developed in the next 10 years by our estimates generating $77 million in revenue during its first year of full production."

Meanwhile, Christopher Welch, at Ocean Equities, said Lace had the capacity to produce more than 400,000 carats per year from its historic Lace kimberlite pipe.

"The total capital cost of the project is relatively low at Rand 384mln (around US$45.7mln), but the total capital requirement is expected to be only R280 mln (around US$33.6mln) as the lace mine will produce revenue from a relatively early stage in its development and tailings," he said.

Welch continued: " The final hurdle for DiamondCorp is financing the development of the project. The company has been in talks with several groups to provide subordinate debt to bolster the loan facility from the IDC. 

"The mine produces a high quality diamond product so there is some potential for Lace to attract diamond off-takers to provide some form of off-take or product stream backed debt."

Earlier, DiamondCorp noted that the South African Prime Rate is now 8.5 per cent compared to 9 per cent previously.

City broker Fairfax, which rates the stock a 'buy' targeting a price of 22 pence, noted that this would give DiamondCorp an interest rate on the loan of 10.5 per cent against 11 per cent initially projected which "should help with cash flows bringing interest payments down by around US$170,000 a year".

The Lace diamond mine is an historic operation around 200 km south-west of Johannesburg, near the town of Kroonstad in Free State Province.

It was first mined between 1901 and 1931, with around 4.5 million tonnes of material extracted down to a depth of around 240 metres.

There are two main types of kimberlite - an upper level with an average grade of 24 carats per hundred tonnes and a deeper one with an average grade of around 55 carats per hundred tonnes.

The company was awarded a mining right to the property in February 2009.