DiamondCorp (LON:DCP) reported that diamond recoveries at its flagship Lace mine in South Africa have been well ahead of expectations.
During the period from March 15 to end May, the company has treated 55,391 tonnes of tailings, recovering 4060.97 carats including an 8.3 carat good quality white gem diamond. This represents a grade of 7.33 carats per hundred tonnes (cpht), which is 47 percent ahead of budget.
The average grade peaked at 7.86 cpht in March.
Meanwhile, tailings retreatment costs have been within budget at R28.70 per tonne, 14 percent below the expected average of R33.40 per tonne.
DiamondCorp expects production rates to achieve the planned level of 36,000 tonnes per month this month, while sales of the Lace tailings diamonds are set to resume in Johannesburg in September.
“We are pleased with the plant performance on tailings retreatment and delighted that diamond recoveries are better than expected and costs are well within budget,” said chief executive of DiamondCorp Paul Loudon.
The group also told investors that the major rebuilds on the underground mining fleet are on schedule and within budget. This work should enable the company to rapidly restart underground development once project finance from the Industrial Development Corporation of South Africa (IDC) is available for drawdown.
The Lace project has been estimated to hold 3.3 million tonnes of tailings at an average recoverable grade of five cpht.
According to broker Fairfax, whose analysts have recently visited the Lace mine, the recovery of diamonds from the tailings provides the company with a useful cash flow.
Analyst John Meyer estimates that the price of US$75 per carat translates into a revenue stream of US$190,000 per month based on a production rate of 2,500 carats.
The processing cost pays for basic labour and utility costs and enables the company to keep the process plant running, Meyer added.
The analyst expects the company to finalise the loan agreement with IDC in July with drawdown in August, while development work should be underway in the third quarter.
Meyer currently has a ‘buy’ recommendation with a price target of 22 pence on DiamondCorp, which represents a massive premium to the company’s current market value.
“The share price does not reflect the de-risking of the company from a technical and financial point of view. Once confirmation of the funding we see considerable upside from current levels,” said Fairfax analyst John Meyer.
Investors liked the news sending shares in DiamondCorp up 2.5 percent to 5.13 pence by 10am, giving it a market cap of £12.4 million.