WH Ireland has slapped a 12p price target on diamond group DiamondCorp (LON:DCP) adding its Lace mine has the potential to produce 0.5 mln carats annually.
Lace, in South Africa, was owned by De Beers at one time but never fully developed. With funding, WHI believes initial production could occur in 2014 with full production by 2015.
The first block in the mine should provide ore until 2025, with two further blocks planned below this to take production to 2040. The orebody remains open at depth, WHI added.
Using a long-term diamond price of $150/ct, the mine has potential to generate over $30 mln per annum in underlying earnings (EBITDA) at full production, said WHI, while the lower blocks will mine higher-grades and could generate underlying earnings of over $50 mln per annum past 2024.
The Lace mineral resource contains 13.3 million carats of diamonds equivalent to an in-situ value of over $2bn of diamonds.
According to WHI, the project is robust with a breakeven price at between $93-113/ct using a 10% and 20% discount rate respectively.
Even if the market for rough diamonds retreats significantly Lace should operate at or close to breakeven the broker said.
The recovery of gem quality diamonds has been demonstrated by the tailings retreatment, which showed recoverable diamonds are present in the upper level of the mine while bulk diamond sampling and plant recovery demonstrated the potential deeper underground.
Project financing has been approved by the IDC. Completion of financing for the remaining R100 mln (US$12.1 mln) via a combination of a bond issue, offtake funding and access to a draw down facility should come through by the end of the year with development to begin in 2013.
Using a price of $150/ct, WHI estimates the NPV is US$95.9 mln using a discount rate of 10%. This doubles to US$181 mln at a price of $200/ct. The broker has a buy recommendation.
The Lace mine is DiamondCorp’s primary asset and located some 200 kilometres south-west of Johannesburg, near the town of Kroonstad in the Free State Province.
It was first mined between 1901 and 1931, with some 4.5 million tonnes of material extracted down to a 240 and around 750,000 carats recovered at an average grade of 16 carats per hundred tonnes.