Shares in DiamondCorp (LON:DCP) spike more than 24 per cent in early trade after the group struck a financing deal that will meet more than three-quarters of the costs of its Lace mine in South Africa.
The Industrial Development Corporation has agreed to lend DCP U$26.7 million, which will be used to develop a 1.2 million tonne a year block cave mining operation at the company’s 74 per cent owned Lace mine.
Chief executive officer Paul Loudon said: "I am very pleased that the terms of the IDC loan facility have been finalised amid difficult market conditions.
“This represents a major milestone for our company's transition from developer to a medium-sized diamond mining company, and we look forward to finalising the balance of our project funding requirements as soon as possible."
DiamondCorp has agreed to raise a further US$12.1 million prior to the initial drawdown of the new Lace facility.
To complete the total financing, the group is considering a “number of options” and it has appointed Rand Merchant Bank and PSG Capital as advisers and arrangers in South Africa to raise up to US$18.1 million via the issue of convertible bonds.
The term of the IDC loan is seven years and the company will pay an interest rate of 2 per cent over South African PrimeRate, which is currently 8.5 per cent.
“This deal offers some attractive paper to London and South Africa focused diamond investors, and in our view, offers fantastic exposure to diamonds; a quasi-commodity that we expect to outperform in the near future due to a long-term supply and demand imbalance in favour of diamond producers,” said Christopher Welch of Ocean Equities.
“Overall the basic fundamentals of the project remain unchanged: the mine will produce roughly 400,000 carats per year, which at their last valuation were valued at more than $172 per carat.
“The peak funding requirement of R285 million, or approximately $34 million, is a very low entry price for the diamond industry, particularly for a project that we expect to secure a robust margin on its product.”
At 10.22am, DiamondCorp shares were up 1.15 pence at 5.9 pence, valuing the group at just short of £14 million.