-ADDS BROKER COMMENT AND SHARE PRICE---
Paragon Diamonds (LON:PRG) has raised £130,000 to explore a possible new mine acquisition that will be developed alongside Lemphane in Lesotho.
Due diligence is being carried out on the kimberlite resource at the mine, with the appeal the possibility of substantial scale economies from ownership of two mines, said Paragon.
Its plan would be to develop both simultaneously, with significant savings to come from combining management teams and contractors.
Philip Falzon Sant Manduca, Paragon’s chairman, cautioned that there was no guarantee the diamond mine acquisition would go ahead as it was only one of a number of interested parties.
Though, if successful, he said the acquisition would significantly boost Paragon’s asset base ahead of Stage One production at Lemphane, which remains on schedule for the next three months.
Stage One will extract one million tonnes of kimberlite over an 18 month to two year period. The target is to recover over 100 diamonds larger than 9 carats, including some larger than 100 carats.
Paragon added talks are underway to cut development costs at Lemphane further through the electrification of the mining operations.
Falzon Sant Manduca said that if it does not make the acquisition the schedule of production at Lemphane remains on track.
“If an acquisition is successful it should significantly re-rate the company, significantly escalate production and revenue numbers and of course one would hope be reflected in a higher share price.”
Falzon Sant Manduca, who is taking part in the £130,000 fund raise, said any acquisition would be funded by debt provided by Dubai-based private finance house ITGT rather than through another share issue.
ITGT backed a US$12mln funding package for Paragon in January that comprised of US$8mln in debt and US$4mln in equity. Its stake in Paragon is just shy of 30%.
House broker Northland repeated a 'buy' call and has a price target of 12.9p, which does not take into account a potential acquisition.
"Constructing two mines at the same time will not be logistically easy with management’s focus split between two projects, but with additional personnel and based on the company’s success to date, it is deliverable," it said.
Analyst Dr Ryan Long said he looked forward to further information on the potential deal along with updates as the development work at Lemphane continues to progress towards production in the second quarter of 2015.
Paragon shares added 1.07% to 5.65p.