-adds broker comment-
Paragon Diamonds' (LON:PRG) is in the advanced stage of discussions over financing for stage one production at its Lemphane mine in Lesotho, it said today.
Martin Doyle, Paragon's executive chairman, said the diamond group was looking forward to updating the market shortly.
Paragon recently tided up the ownership of the Lemphane project and now owns 80%, with the Lesotho government owning the remainder. The company was awarded a mining licence in February.
Paragon posted a loss after tax of £1.3 mln in 2013 (2012: loss of £5.1 mln). Cash at the year end was £0.2 mln (2012: £0.5mln) with group borrowings £2.6 mln.
Doyle added last year’s work had strengthened the belief that Lemphane, the last known significantly sized kimberlite to be developed in Lesotho, has the potential to be a billion dollar resource.
"Having finalised the terms of the Mining Lease post the period end, we will now look to accelerate plans to commence Stage 1 production at Lemphane later this year.
"With demand forecast to outstrip supply for the foreseeable future, Paragon Diamonds is well placed to take advantage of the attractive fundamentals of the diamond market, build a cash generative diamond producer."
Stage 1 production is expected to generate revenues of US$8m per annum starting late 2014 at the open pit, with a target rate of 20,000 carats at an estimated average value of US$750 per carat.
Broker Sanlam added that the low grade, high value, kimberlites found in Lesotho can only be evaluated through very large bulk sampling.
Paragon’s Lemphane kimberlite has the potential to contain a similar profile of stones sizes and stone values as Gem Diamonds’ Letseng.
This will only become clear once Stage 1 mining is completed, however the statistical data collected thus far from bulk sampling is extremely encouraging, Sanlam said.
“Indeed the stone size distribution curve of Lemphane is very similar to Letseng’s, it just needs more data to complete the curve. Effectively this means Lemphane needs to produce more very large high value stones and the only way is to trial mine.”
Lemphane has the potential to be a very profitable mining operation, adds the broker, with the large increase in tonnage last year and its very low strip ratio very significant advantages.
Shares today were 3.88p.