---ADDS CEO COMMENTS RE FUNDING---
Paragon Diamonds (LON:PRG) rose 7% after it said it has received official sign-off for the US$8.5mln acquisition of the Mothae kimberlite in Lesotho from Toronto listed Lucara Diamond Corp.
Formal approval from the government for the purchase of a 75% stake in the diamond project took a little longer than anticipated, but paves the way to development of deposit in tandem with the Lemphane asset Paragon already owns.
This twin track approach is designed to take advantage of economies of scale. The plan is to have the sites up and running later this year.
Chairman Philip Falzon Sant Manduca said Paragon is holding “serious discussions” with potential funders of the US$28mln investment needed to build the mines. These are in addition to the memorandum of understanding it has with Dubai-based ITGT to supply the cash.
“It is a bit of game of chess when you are running a business. You need to be thinking two or three or four moves ahead,” Manduca told Proactive Investors, when asked about a potential new source of investment.
“In two years’ time, when we are at full production, we are going to need more money.
“It would be sweet to be wrapping up funding with investors who want to both play today and support us tomorrow.
“And I think that is what we are looking at here - an option on we have on the table, we are in discussions with, which could really significantly solidify this company going forward.”
He said there is a role for ITGT, whose expertise lies in distribution. Whether that involves funding all or part of the mine development remains to be seen.
Just five kilometres from just three miles from the world-class Letseng mine, owned by Gem Diamonds (LON:GEMD).
The mine economics, meanwhile, are attractive. Mothae’s net present value is estimated to be US$115mln – discounted at 12% over 13 years - while the internal rate of return is put at 116% for an initial 750,000 tonnes a year operation, rising to 2mln.
The operation comes with a processing plant, which will be upgraded, and the seller, Lucara Diamond Corp, has developed some of the mine infrastructure already.
At full operational capacity (within the next three years) Paragon expects to be a 5Mln tonne per year producer of in excess of 100,000 exceptional carats with average values exceeding US$1,500/carat at current prices.
This could generate combined annual revenue of approximately US$160mln and combined profit of approximately US$97mln.
In the first year when both mines are in full production, Paragon expects combined revenues of approximately US$36mln.
Shares rose 7% to 5.74p, valuing the business at just shy of £17mln.