DiamondCorp (LON:DCP, JSE:DMC) announced that a review of development costs at its Lace project South Africa showed very strong economics of the mine, estimating very high margins and revenues.
“The Lace mine has the potential to be a significant cash generator for DiamondCorp with more than 25 years of mine life. At current strong diamond prices, the initial minimum operating margin is expected to be a robust 46 percent, rising to very high levels if the diamond grade improves with depth as forecast in the geological model,” said chief executive of DiamondCorp Paul Loudon.
The initial earnings before interest taxes, depreciation and amortization (EBITDA) of the project are estimated to be between £7.1 million and £14.2 million per annum.
The company decided to add conveyor belts to surface, which will increase development costs, but also reduce operating expenses over the life of mine. It will also offset the anticipated increase in electricity tariffs, which are expected to rise 26 percent in 2012 and be raised further in the following two years.
DiamondCorp considered three diamond prices, a base case of US$120 per carat, a middle case of US$140 per carat and an upper case of US$160 per carat.
All used an initial mining grade of 24 carats per hundred tonnes (cpht). The grade is forecast to rise to 40 cpht after the first eight years of mining when the deeper, higher grade CK kimberlite is mined.
A grade of 24 cpht results in an annual production of 294,000 carats, while a 40 cpht grade takes this figure to 490,000 carats. At the current diamond prices, the initial minimum margin is expected at 46 percent and would go up to 60 percent if the grades improve with the depth, as was forecast in the geological model.
Diamond sales revenue from this kimberlite will contribute between £8.04 million and £10.35 million towards mine developing costs, depending on grade and carat value; net capital costs to reach full production has been estimated between £8.9 million and £11.3 million depending on revenue from sales during development.Diamond revenue is estimated to be between £17.50 and £23.30 per tonne, while operating costs are expected to be £9.38 per tonne, giving an initial operating margin of 46 to 60 percent.
About 400,000 tonnes of kimberlite is scheduled to be mined from stoping development in the first 17 months of mine development to November 2012, when full-scale commercial production is expected to be reached.
The 30,000 tonne bulk sample currently underway at Lace will determine the initial mining grade and carat value at the top of the first mining block. Mining of the first block of kimberlite is set to be undertaken at a rate of 4,000 tonnes per day (tpd).
The initial mining rates have been hampered by the relocation of the main dewatering pumps and component breakdowns on a fleet of dump trucks hired by the company to supplement its own fleet.
The delays mean that a preliminary grade and carat value will be available this month, but the final results will not be available until July.