There was a small dip in the share price of Diamondcorp (LON:DCP) after news that a four month delay to development work at the Lace mine in South Africa’s Free State is now likely.
That the shares didn’t fall more heavily is down to two separate, but related factors.
The first is that, actually, what has been achieved at Lace over the past year or so is really quite considerable, and the market knows that in the start-up of any mine there are bound to be one or two glitches.
In the case of Lace, the underground operators encountered unstable ground conditions that required the installation of steel arches to project employees and expensive drilling equipment from potential falls of ground.
The installation of those arches is now complete, but the work has put back preparations for the first major rock-blast by about four months.
This in turn could lead to pressure on the cash flow of the Lace operating subsidiary as a first debt payment to the South African development bank the Industrial Development Corporation, or IDC, is due in January.
However, although not exactly delighted about the delay, Diamondcorp’s Paul Loudon is relatively sanguine about the consequences.
For a start, he’s conscious of the immense progress that has been made at the project over the past year or so - as financing has been put in place, economic studies finalised, wage negotiations completed, plant installed, and other development work undertaken.
“We’ve been building it one block at a time,” he says. “We’re progressively de-risking this project.”
The latest issue with the ground conditions is problematic, but more about timing than anything else.
Which brings us on to the IDC and that pending debt repayment.
But here, Loudon is relatively sanguine too.
The official Diamondcorp release states that discussions with the company’s primary lenders and black economic empowerment partners have been “positive” and that “a formal request to continue interest roll-up of the Industrial Development Corporation loan until positive cash flow has been achieved has been lodged.”
Loudon is fairly comfortable that the IDC will be accommodating in respect of this request, not least because of Diamondcorp’s track record of job creation at Lace, and the likelihood that it will create more.
“We undertook to create 230 jobs,” he says. “It’s now at 260, and we’ll have 300 when the mine is up and running.”
And after all, what we’re talking about here is a four month delay for a problem that’s already been rectified, not a major setback to the overall plan.
Indeed, on that score, things are actually improving. Operationally, the ongoing installation of the conveyors will allow for a tenfold increase in the amount of rock the company can move to the surface.
Further out, a new waste management system that will allow for the sorting out of unwanted material at an earlier stage in processing could have a significant impact on the net present value of Lace.
The plan as it stands is to mine down to the 855 level over a period of 25 years. The new system could allow that mining to be completed in just 17 years, bringing returns forward significantly.
So watch for more news on that soon, as well as news on debt payments and the initiation of mining.
It’ll be a busy period for Diamondcorp, but it shouldn’t be too long now before it produces the first of many, many diamonds mined from underground.