WH Ireland remains upbeat on prospects for DiamondCorp (LON:DCP) after a visit to the Lace mine in South Africa.
Construction has begun in earnest, said the broker, with underground development, the start of the box-cut for the new underground decline and a thorough clean and maintenance of the plant.
Tailings production will recommence shortly with underground ore processed through the plant in the latter half of 2015 and full production in 2016.
The first block in the mine should provide ore until 2025, with two further blocks planned below this to take production to 2040.
Using a long-term diamond price of US$150 per carat (ct) for the Lace diamonds, the mine has the potential to generate underlying earnings (EBITDA) of over US$30mln per annum at full production, according to WHI.
The lower blocks will mine higher grades and underlying earning could rise to US$50mln per annum past 2024.
The resource at Lace contains 13.3 million carats of diamonds, which at a representative 2011 value of US$150/ct equates to an in-situ value of over US$2bn of diamonds.
The breakeven price is between US$91-112/ct using a 10% and 20% discount rate respectively.
This is a price received for tailings diamonds from Lace and even if the market for rough diamonds retreats significantly, Lace should operate at, or close to, breakeven WHI adds.
A US$6m loan from Laurelton (Tiffany) together with cash held by DiamondCorp and access to loans from the Industrial Development Corp of South Africa will be enough to bring the first phase of the Lace mine into production from the 47-level Block Cave.
Peak capital required to bring the mine into production from fresh kimberlite ore is estimated in the feasibility study to be in the order of US$37mln, which includes a 15% contingency.
Maximum capital expenditure is estimated at US$50mln.
WHI’s target price is 17.9p.