Paragon Diamonds’ (LON:PRG) vertically integrated approach to the development of the Lemphane mine in Lesotho is sensible, reckons house broker Northland.
The AIM-quoted miner is on course to start production by the second quarter of this year.
As well as securing diamonds at source, the group is increasingly focused on developing its mid and downstream business activities, such as cutting, polishing and retailing through off-take agreements and joint ventures.
Northland said the strategy can capture uplift through the value chain for investors.
It currently values Paragon Diamonds at 12.9p per share, 144% higher than the current share price.
“Paragon’s transformation into a vertically integrated diamond company allows it to generate additional cash flow, at a minimal cost, from the upside resulting from the cutting and polishing of stones, further improving the company’s operating margins,” said Northland analyst Ryan Long.
On Lemphane, the broker forecasts that the mine will generate an average life of mine cash flow of US$58mln per annum, with a cumulative positive cash flow of US$874mln by 2033, making it a significant player in the junior diamond mining space.
At the end of last year the firm told investors that design and order plans had been finalised for a state-of-the-art diamond processing plant in Lesotho.
Modern technology, using X-rays, and a modular design will mean both capital and operating costs will be reduced, while diamond recoveries are expected to be improved.
This will result in a significant enhancement to the Lemphane project's economics, chairman Philip Falzon Sant Manduca said.