| Tue 27 Jan 2009, 12:00 | | DMC - DiamondCorp - Market Update |
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DMC
DMC
DMC - DiamondCorp - Market Update
DiamondCorp Plc
JSE share code: DMC & AIM share code: DCP
ISIN: GB00B183ZC46
(Incorporated in England and Wales)
(Registration number 05400982)
(SA company registration number 2007/031444/10)
("DiamondCorp" or "the Company")
MARKET UPDATE
DiamondCorp plc, the South African diamond mining company, is pleased to provide
the following update on its activities for the 12 months ended 31 December 2008.
Highlights
- Lace tailings re-treatment recovered 50,521 carats of diamonds in the year.
- Recoveries averaged 6.28 carats per hundred tonnes (cpht) and approximately
70% of diamonds recovered were gem quality. Recoveries improved to 7.23 cpht in
Q4 following re-commissioning of the recrush circuit.
- 31,906 carats of gem diamonds were sold at tender in Johannesburg for
R14,129,203 (US$1.707 million) at an average price of US$53.52 per carat.
- Diamond prices suffered a significant drop in the second half, with final
tender sales in November achieving 50 per cent of the prices received earlier in
the year. As a result tailings re-treatment is no longer economic and this
activity has ceased.
- Mining right granted for the Phase Two Lace underground development, and
initial mining of kimberlite from the Satellite pipe has commenced.
- Access to potentially high-grade, high-value hypabyssal kimberlite from the
Main pipe is being accelerated.
- Kimberlite will be stockpiled until March when a new primary crushing circuit
is commissioned.
- GBP3.55 million of equity capital was raised through two share placements
during the year, and a project loan of US$5.0 million was secured, providing all
the required debt and equity for the Phase Two.
- In November, the European Islamic Investment Bank became DiamondCorp`s largest
shareholder. Mr Robin Henshall, EIIB`s Head of Private Equity, joined the Board
of the Company.
- Group cash balances at 31 December totalled R45.2 million (GBP3.3 million) and
long-term debt was US$5.0 million (GBP3.45 million). The project loan is a 36
month facility with capital repayments of US$0.5 million in April 2010, US$1.0
million in October 2010, US$1.5 million in April 2011 and US$2.0 million in
October 2011. The interest rate is fixed at 12%.
Commenting on the period, DiamondCorp CEO Paul Loudon said: `The decision last
year to accelerate development of the Lace underground mine has proven to be
timely, with mining of higher value kimberlite now underway and able to take
over from tailings re-treatment activities, which have become uneconomic as a
result of a fall in diamond prices.
`Importantly, we have also been granted the mining right for the underground,
meaning we are not limited in any way in the speed with which we can ramp up to
full underground production. As a result we have ceased tailings re-treatment
and are able to now focus all our efforts on maximising higher value underground
production, including accelerated access to the potentially very high-grade
hypabyssal kimberlite in the Main pipe.
`The world wide economic downturn has impacted significantly on the diamond
market, with prices received for Lace diamonds falling 50 per cent during the
fourth quarter of 2008. The accelerated Phase Two development programme targets
kimberlite with the potential for profit at these lower prices.
`Despite difficult debt and equity markets for junior resource companies, we are
pleased to have raised sufficient debt and equity during 2008 to fund this
accelerated development programme.
`While the reduced demand and lower diamond prices are expected to be sustained
throughout 2009, the impact on DiamondCorp is cushioned somewhat by the
depreciation of the South African rand against the dollar.
`I am confident that DiamondCorp is positioned well to weather these challenging
trading conditions, as it reaches the final stretch in the development of the
high-value, long-life Lace mine.`
South African Operations - Lace Diamond Mine (DiamondCorp 74%)
DiamondCorp`s 74%-owned Lace diamond mine is located 200km southwest of
Johannesburg in the Free State Province of South Africa. The project comprises
the Lace kimberlites which have the potential to support a +20-year underground
mining operation and tailings from previous mining operations which were treated
throughout 2008 while access to the kimberlite pipes was established.
Approximately 35 million tonnes of kimberlite have been outlined in the main
Lace pipe between the 240m and the 855m level, containing an estimated 13.8
million carats of diamonds at an average grade of 42 cpht. Up to a further 7
million tonnes of kimberlite exists above the 240m level, but is not taken into
account in the Company`s resource estimates due to the existence of old
workings. Nonetheless this remnant kimberlite, much of which is expected to be
high-grade hypabyssal material, will be mined once access to the old workings is
achieved. A further 3.5 million tonnes of kimberlite also exists in a Satellite
pipe 30m to the west of the main pipe. The Satellite pipe was historically a
lower diamond grade than the main pipe and no tonnage from this pipe has been
incorporated into resource estimates.
A new 4m x 4m decline has been sunk between the Lace pipes and the existing 6m x
2.7m vertical shaft using the Company`s own underground mining fleet. This
decline accessed the Satellite pipe late in 2008 and holed through the side wall
of the main Lace pit in early January, allowing ventilation equipping to be
established.
Late in 2008, the Department of Minerals and Energy granted a mining right for
the Lace underground development, which is scheduled to be executed in Welkom on
5 February 2009.
An initial 20,000-30,000 tonne bulk sample is now being extracted from the
Satellite pipe while the decline continues around to access potentially high-
grade hypabyssal kimberlite in the Main pipe during the second half of 2009. If
Satellite pipe grades allow for profitable mining at current prices, then mining
of this material will continue until the Main pipe material is accessed. The
initial mining rate is 1,000 tonnes per day, with plans to increase this to
3,000 tonnes per day by the second half of 2009.
Re-treatment of Lace tailings continued during 2008, with 803,810 tonnes treated
for the recovery of 50,521 carats of diamonds, of which approximately 70% were
gem quality. Total recovery over the period averaged 6.28 carats per hundred
tonnes (cpht) and were lower than anticipated due to failures in the re-crush
circuit which were not resolved until October with the installation of a new
vertical spindle impact (VSI) crusher to replace the failed cone crusher.
Successful commissioning of the VSI crusher saw recoveries improve to 7.23 cpht
in the final quarter. Overall recoveries in Q4 were hampered by mining of a
lower grade zone of the dump containing old slimes and non-kimberlitic material.
The fall in diamond prices suffered during Q4 has rendered the tailings re-
treatment operation uneconomic and this activity has now ceased while the plant
is re-configured for the commencement of kimberlite processing in March.
Recommencement of this activity will be assessed when diamond prices recover.
Seven diamond tenders were held in Johannesburg during 2008, with 31,906 carats
of gem diamonds being sold for total revenue of R14,129,203 (US$1.707 million)
at an average price of US$53.52 per carat. Non-gem diamonds totalling 12,493
carats were sold for R137,112 (US$16,821) during the year. From the third
quarter onwards, all production was first offered to the State Diamond Trader
which has the right to negotiate the purchase of up to 10 per cent of the
production.
The operational issues experienced early in 2008 have been resolved and the Lace
processing plant is now operating to design capacity. No power outages occurred
following connection mid-year to the new Eskom power line supplying the nearby
Voorspoed diamond mine operated by De Beers.
Corporate
Equity of GBP3.55 million was raised through two share placements during 2008,
and a project loan of US$5.0 million was secured, providing all the required
debt and equity for Phase Two underground development at Lace.
The project loan is a 36 month facility with capital repayments of US$0.5
million in April 2010, US$1.0 million in October 2010, US$1.5 million in April
2011 and US$2.0 million in October 2011. The interest rate is fixed at 12%.
After participating in a private placement and acquiring additional shares on
market, the European Islamic Investment Bank has become the Company`s largest
shareholder. Mr Robin Henshall, EIIB`s Head of Private Equity, joined the
DiamondCorp board.
During the year, the Company assessed a number of other diamond production
opportunities but none of these achieved the Company`s hurdle rate for project
scale or profitability.
On behalf of the board
Euan Worthington
Chairman
27 January 2009
London
Sponsor:
Investec Bank Limited
For further information, please contact:
Paul Loudon
DiamondCorp plc
+44 20 7256 2651
Joe Nally/Liz Bowman
Cenkos Securities plc
+44 20 7397 8900
Robert Smith/Tanis Crosby
Investec Bank Limited
+27 11 286 7662
Charmane Russell
Russell & Associates
+27 11 880 3924
Gareth Tredway/Jos Simson
Conduit PR
+44 20 7429 6666/+44 7429 6612
Date: 27/01/2009 12:00:01 Produced by the JSE SENS Department.
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