Diamondcorp (LON:DCP) has found more high-grade Kimberlite as development on its Lace mine in South Africa progresses
Chief executive Paul Loudon explains to Proactive Investors (PI) what the discovery means for the company.
Paul Loudon: Lace is an old mine and went about 200 metres (m) down before it was shut down in 1931. When we took control of the project, nothing had happened on it since that time.
From the surface we could only drill below the old workings, because you can’t drill through workings, because you lose your drill strength.
We didn’t know a lot about what was sitting above the 340m level, because that was the level below which we were drilling. We were able to drill off 33mln tons below that level, which is enough for a 25-year mine life.
Now that we’ve de-watered and we’re underground, we’ve been able to drill from inside the old workings and we’ve been able to discover that sitting above the 345m level there is at least a million tons of potentially very high grade kimberlite, which could be mined quite early while we’re developing, simultaneously, with our development of the underground mine.
It’s very exciting for us, because it means that we bring forward cash flow to this project.
PI: Will that also affect your debt repayment schedule as well?
PL: It doesn’t impact the debt repayment, as we don’t have to start repaying debt until 2016, but we’ll be able to start mining this block next year, which gives us significant additional cash flow in 2015.
That means that by the time we go into 2016, which is the commencement of debt repayment, we have very healthy cash balances from operations.
PI: Will this discovery result in a new mine plan, for example?
PL: No, it’s just a modification of the existing mine plan. Mine plans are always optimised, particularly underground mine plans, as you move forward and more information comes to hand. In this case this is an optimisation of the mine plan.
PI: What is the current demand for rough diamonds and how are sales?
PL: Rough diamonds: The long-term outlook for diamonds is very strong because the world can’t produce as many rough diamonds as the world wants to consume, but, in the short-term, rough diamond demand really depends upon the health of the US economy.
The US still accounts for 50% of diamond jewellery sales. With the US economy progressively recovering, we’re starting to see a strengthening in prices, which are up some 5-10% so far this year.
We don’t expect to see too much more strengthening, but you would hope that prices remain steady for the rest of the year and progressively increase during 2015 and 2016 as the US economy recovers and the new drivers from India and China start to feed into demand as well.
At the moment, though, diamonds are really a proxy for the health of the US economy and if it continues to recover, albeit slowly, rough diamond prices will progressively increase.
PI: What is the timeline for underground production at Lace?
PL: From the 47 level block caves, production would start to in the second half of next year. Block caving is a progressive ramp up that takes some 18 months before you reach absolutely full production from the caves. That would be starting in the second half of next year.
This upper K4 block, this new high grade zone that we’re now drilling off, has the potential to come in in the first quarter of next year.
That would mean that the new optimised mine plan would be bringing production in six months ahead of schedule.