-- Adds broker comment --
Paragon Diamonds (LON:PRG) has released a scoping study of its Lemphane kimberlite project in Lesotho which it says confirms the favourable economics of the asset.
Paragon, which has an 85% ownership interest in the project, is currently undertaking a drilling, exploration and sampling exercise at the site in order to derive a maiden mineral resource.
The mine design and planning has derived a tonnage that can potentially be mined for a life of mine (LoM) of around 10 years.
Based on that, the anticipated kimberlite tonnage to be mined is 27.0 million tonnes, to a depth of 280 metres below surface, with a waste to ore ratio of 1.3:1.
Anticipated all-in mining costs have been estimated at less than US$20 a tonne and the capital costs put at less than US$5 a tonne.
The financial model is based on a revenue per carat of US1,500, with a peak annual production of 65,000 carats. Project revenue over the 10-year LoM has been put at US$892.5mln, with a notional profit over that period of US$222.6mln.
The study’s discounted cash flow model indicates the following main parameters: in-situ revenue per tonne of US33 per tonne (derived); an internal rate of return of 22%; a net present value (NPV) at 5% discount of U$128.23mln.
The NPV values decline to US$95.3mln at a 7.5% discount rate, US$69.0mln at 10% and US$47.8mln at 12.5%.
Paragon Diamonds chairman Martin Doyle said: "The scoping study confirms the favourable economics of the mining of the Lemphane kimberlite. Work is continuing on resource development with the current bulk sampling and delineation drilling programmes. It is anticipated that on completion of the next trial mining phase of 100,000 tonnes of kimberlite a sufficiently robust resource will have been established to support a decision to proceed to full scale production."
“There is a fair bit of detail released in the summary of the scoping study,” said broker Fox-Davies after wading through the 13-page version of the 127 page full version submitted in February 2013 to the Ministry of Mines in Lesotho.
“By far the most interesting is the fact that as yet there are no ore reserves,” the broker opines.
“The scoping study is a step in the application for a Mining Lease to enable the processing of 0.1mln tonnes of kimberlite over approximately six months. Hopefully, this will be achieved quickly to allow the trial mining to follow-on seamlessly from the current bulk sampling. The only other comments we would like to make about the scoping study are that the costs used are within +/-35% and the exchange rate looks very conservative,” Fox Davies said.
An exchange rate of 8.5 maloti to the US dollar has been used throughout the scoping study.