---Adds broker comments---
Notification from Sierra Leone that Paragon Diamonds (LON:PRG) needs to reapply for four mining licences will not have a major impact on the company, according to broker Fox Davies.
The broker maintains its 'buy' stance on the stock and its price target of 34 pence a share.
The company had already put its Konoma mine in Sierra Leone on a care and maintenance basis last year due to the uncertainty over mining legislation in the country and has reduced its operating costs to the minimum necessary to safeguard its physical assets and the few remaining staff in-country.
It says it has now received letters from the Ministry of Mines that four mining licences held by the company's subsidiary, Sierra Leone Hard Rock may require re-application and/or re-issuance.
"Although this is a blow for PRG, we do not see it having a major impact on the company," said analyst Juan Alvarez.
He said the worst case scenario for the firm was that it loses the licences in question.
"As PRG had previously put the operations on care and maintenance last August this will not have an effect on cash flows. The value destruction will come because PRG will not be able to sell the licences as it had hoped if they are lost.
"We had already factored this into our share price target back in August when the company announced it was on care and maintenance.
"We believe the real upside in the company still lies in the Lesotho assets and the potential that is developing there," Alvarez said.
Paragon's managing director Stephen Grimmer said earlier: "The company will continue to seek clarification on the irregularities surrounding these issues - particularly as the licences under discussion were issued as valid until April 2016, and are not subject to any renewal at this time.”
He added that Paragon was now focused on its assets in Lesotho at the Lemphane and Motete kimberlites, where he said the potential exists to rapidly develop a diamond resource “far exceeding the stated mineral assets in Sierra Leone".
Paragon released the latest data from the Motete Dyke project today, showing comprehensive micro-diamond grades of 90 cpht (carats per hundred tonnes) at +0.85mm and 60 cpht +1.18mm, while its own consultant confirmed in-house tonnage estimates of 1.1 Mt to 2,350 m ASL.
The value of the diamonds at the site was provisionally estimated by its diamond valuer at US$ 160 per carat for +0.85mm and US$ 200 per carat for +1.18mm diamonds.
Paragon added that road access is complete and the first bulk sample of 350 tonnes had been mined and transported to the process plant.
A delineation drilling programme of four drill holes starts in early May, which will be the basis of an initial diamond resource at Motete.
Another company, Stellar Diamonds (LON:STEL) said yesterday it was in dispute with the Sierra Leone mining ministry over the legitimacy of its licences for its two licences in the Kono District in the country.
As at 11am, Paragon shares were up 0.40 per cent, at 31.50 pence.