Lucapa Diamond Company (ASX:LOM) has diversified and de-risked its diamond production with the acquisition of 70% of the Mothae Kimberlite Project.
Lucapa has a plan to bring Mothae into production within 12 months under a staged low-risk development strategy.
The project was acquired from the Government of the Kingdom of Lesotho (GOL) which retains 30% ownership.
Lesotho is an independent Kingdom surrounded by South Africa, and one of the best quality diamond producing countries in the world.
The project is strategically located just 5 kilometres from Letšeng – the highest $ per carat kimberlite mine that exists.
Further enhancing the prospectivity of the area, there are three other kimberlite mines.
Mothae is a complementary fit with the company's Lulo mine in Angola which has a similarly high-value diamond production.
Stephen Wetherall, managing director, commented:
"Mothae, acquired for a price we consider to be highly competitive, represents a compelling opportunity for Lucapa to grow its cash flows from a second diamond mining operation through a staged and low-risk development of a well-sampled kimberlite that has much upside potential."
Mothae
Mothae is a high-quality advanced kimberlite diamond project and hosts a NI43-101 indicated and inferred resource of 1 million carats.
Trial mining has proven that similar to Letšeng, Mothae hosts large, premium-value and Type IIa diamonds, including individual stones up to 254 carats and gem-quality diamonds which have sold for up to US$41,500 per carat.
Key to the project is infrastructure in place enabling production within 12 months.
Lucapa outlined that Phase 1 is supported by robust mining plan with 18 month pay-back, with Phase 2 to be scoped.
Consideration for the deal
Competitive acquisition price of US$9 million (for 70% interest) payable over 10 months, which compares with historical development spending of circa US$36 million.
Consideration is structured to enable Lucapa to fund acquisition from combination of existing cash, anticipated distributions from Lulo operations, in-the-money option conversions, financing or equity.
Analysis
There is only one thing better than owning a diamond mine that produces large, high-quality value diamonds - and that is owning two.
The deal was achieved due to Lucapa’s operating prowess and track record at Lulo.
The Lucapa management team has extensive experience in southern Africa, including in Lesotho and at the Letseng mine, which they can leverage off for the company's Mothae development plan.
Hartleys has put its support behind the acquisition, lifting its target price to $0.77 per share, while maintaining its Speculative Buy recommendation.
The broker noted in its latest report:
"Next steps for Lucapa include completing conditions precedent, converting resources to JORC 2012, an environmental assessment, engaging contractors for plant design/build, and mining; and establishing a marketing channel for the diamonds."
Lesotho is a mining friendly and well-regulated jurisdiction with a long history of diamond mining.
Apart from world-class Letšeng mine, other major diamond projects in Lesotho include the Liqhobong kimberlite mine currently being commissioned by Firestone Diamonds and the Kao mine.
Development projects include the Motete Dyke, Lemphane and Kolo diamond pipes.