| Wed 29 Jun 2011, 8:00 | | DMC - DiamondCorp plc - Annual report and notice of annual general meeting |
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DMC
DMC
DMC - DiamondCorp plc - Annual report and notice of annual general meeting
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")
NOT FOR DISTRIBUTION IN OR INTO AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES
OR ANY OTHER JURISDICTION IF TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
LAWS OF SUCH JURISDICTION
ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING
DiamondCorp plc, the African diamond mining and exploration company,
announces that its Annual Report and Audited Accounts for the financial year
ended 31 December 2010 ("Annual Report") have been posted to shareholders.
The Annual Report is available for download and can be viewed on the
Company`s website (www.diamondcorp.plc.uk).
The Annual General Meeting of the Company will be held at 30 City Road,
London, EC1Y 2AG on 25 July 2011 at 11:00 am (UK time) and 12:00 pm (SA
time).
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE
Dear Shareholder
The past year has been one of great progress at the Lace Mine and the next 12
months should see our efforts bear fruit. Less than a month after receiving
funds from a share placing in March last year, underground development had
resumed at the Lace Mine.
In little more than a year, our small team had driven a decline 1,800m down
to the -260m level and, as recently announced, hit fresh kimberlite. At this
moment, ore is being brought to the surface and processed through the
recovery plant which by the end of July is scheduled to give us a grade and
value of the contained diamonds at this level. Initial recoveries are
positive, and we are confident that our base case revenue forecast of
approximately $30/tonne will be met, being a grade of 24 carats per hundred
tonnes ("cpht") and carat value of $120 per carat.
While Lace has been the focus of our attention in recent months, we have also
outlined another diamondiferous kimberlite on our exploration property near
Debswana`s huge Jwaneng mine in Botswana. Samples from diamond drilling of J-
05, recovered two macro diamonds and 49 micro diamonds which is exceptional
for such a small volume. Together with the delineation of J-01 which we found
to be diamondiferous in late 2009, we now have two significant targets for
bulk sampling.
The Diamond Market
Led by demand from increasingly affluent Chinese and Indian consumers, the
diamond market has made a staggering recovery from the depressed levels of
mid-2009. In February 2011, we sold a package of 1,321 carats recovered from
the Lace tailings for an average of US$94/ct which compared to the highest
price we received before the crash of $55/ct in September 2008 and the lowest
of $33/ct we received from a small sale in May 2009. Our example has been
experienced by other producers.
The outlook is for demand to remain strong in Asia while a slow recovery in
the US economy should also boost consumption, which is important as the US
remains the largest diamond market accounting for some 40% of offtake. On the
supply side, some closures made when prices collapsed in 2008-09 have
remained in place and the only large new source of supply has come from the
Marange diamond fields in Zimbabwe. As we noted in our report last year, no
major new diamondiferous kimberlite discoveries have been made in recent
years; this together with the prospects on the demand side could well lead
to further price rises in the future.
The Lace Mine
Buoyed with the support we received from our brokers and shareholders in
raising the required development capital to re-commence activities at Lace,
management recruited the required contractors and workforce to resume
operations in earnest at the mine in the second quarter of 2010. The
development activities focussed on sinking a new 4.5m x 4.5m decline to
access the main kimberlite below the previously stoped workings. Through this
decline we would be able to get trackless mining equipment into the
kimberlite pipe and extract a sufficiently large bulk sample to determine the
grade and carat value of the Lace diamonds at the top of the remaining
resources.
Development commenced with a combination of contract miners and the Company`s
own fleet of underground mining equipment. As the decline lengthened
increasing haulage cycle times, a hire fleet of additional low profile dump
trucks was added.
The initial target for the decline to reach the pipe was the -238m level,
being the base of the previous stoping operations which took place between
1900 and 1931. However, with safety being our number one priority, we
modified the target depth, in consultation with our independent rock
engineers and independent mining consultants, to the -260m level in order to
provide a significant middling between our planned sampling activities and
the previously mined areas, thereby mitigating the potential for mud rushes
which is an ever present risk in underground kimberlite mining operations.
This decision extended the time frame for completing the decline from January
2011 until the end of March 2011.
More than 1km of the decline advance was achieved by the end of 2010, both on
schedule and within budget. Subsequent to year end, unprecedented rainfall in
southern Africa had a negative impact on progress as the decline was flooded
on several occasions and mine dewatering ran increasingly behind schedule due
to unplanned rainfall ingress into the old workings. The contact with the
kimberlite was ultimately reached on 10 May 2011, some six weeks behind
schedule, with a total decline length of 1.8km.
We are pleased to report that the decline development was achieved with only
one reportable injury to a drill rig operator, who by year end had been able
to resume full working duties. While we would have preferred to report no
injuries whatsoever, be assured that the safety of our workforce is our prime
focus, and all possible efforts are made to ensure our workers are correctly
educated in the safest possible working practices. Fatality free shifts at
year end totalled 9,323 since recommencement of activities.
In October, our workforce and management were shocked and saddened by the
sudden and unexpected death of our mine manager, Mr Keith McCulloch. Keith
was an inspiration to us all in resuming development activities with renewed
enthusiasm and his presence is sadly missed. By year end, we were fortunate
enough to recruit Mr Wayne Cloete as a new mine manager, who brought to the
project enormous experience in underground trackless mining and decline
development.
Our bulk sampling plan calls for approximately 30,000 tonnes of kimberlite to
be extracted from the -260m level. This will be taken from six 3m x 3m
parallel development drives across the full extent of the 2.5 hectare main
Lace pipe. This kimberlite will be hauled to surface and processed through
the Lace dense media separation plant. The recovered diamonds will determine
the grade of the kimberlite at the -260m level. These diamonds will be graded
and valued, then subsequently sold by tender to ascertain the current market
value. The combination of grade and carat value will determine the economics
of progressing to full scale mine development at Lace.
Throughout 2010, the Lace dense media separation plant was kept on care and
maintenance. Towards the end of the year, recommissioning activities
commenced to ensure the plant was in optimal operational condition when the
bulk sample was delivered for processing. Subsequent to the year end and as
part of the recommissioning process, the plant processed several batches of
kimberlite tailings remaining from mining activities which took place between
1900 and 1931. Some 1,321 carats of diamonds recovered during this
recommissioning were sold at tender in Johannesburg in February 2011 for
US$94 per carat. This compares with US$55 per carat received in September
2008, the last time the Company tendered diamonds prior to the price collapse
which began in the following month, and US$33 per carat received in May 2009
at the bottom of the market. This strong price for Lace tailings diamonds
leads us to believe that DiamondCorp`s base case of US$120 per carat for
diamonds from the Lace pipe is conservative in the current market.
Also subsequent to the year end, a detailed review of life of mine planning
has been undertaken by the Lace mine management team in conjunction with
DiamondCorp`s Group Consulting Mining Engineer, Mr Bob Harverson. Mr
Harverson is a mining engineer with more than 40 years` experience in
underground diamond mines in South Africa. He was previously Mine Manager
(Kimberley) and Project Manager (Finsch) for De Beers, then independent
advisor to De Beers on block caving and underground mining across all De
Beers` operations. Also involved in the planning has been Dr Patrick
Bartlett, an independent consulting geologist with more than 40 years`
experience in underground diamond mines in South Africa. He was previously
Chief Geologist, Premier Mine and Block Cave School Project Leader for De
Beers.
The results of the life of mine review can be summarized as follows:
- Mining of the first block of kimberlite between the 26 and 33 levels (-
260m to -330m depth) is scheduled to be undertaken at a rate of 4,000
tonnes per day.
- The first block containing approximately 4.8 million tonnes of
kimberlite will be mined by sub-level stoping, followed by sub-level
caving for the estimated 27.5 million tonnes of kimberlite below the 33
level.
- Ore hoisting will be by conveyor belts to surface and the existing 6.5m
x 2.5m vertical shaft will be used for upcast ventilation. This
eliminates the requirement to raise bore a new ventilation shaft.
- The introduction of conveyors has resulted in an increase in development
costs, but provides significant savings on life of mine operating costs
given the anticipated increases in South African electricity tariffs in
the years ahead. It has minimal impact on the development schedule.
- Three diamond selling prices were considered, all using an initial
mining grade of 24 carats per hundred tonnes (cpht) - a base case of
US$120 per carat, a middle case of US$140 per carat and an upper case of
US$160 per carat.
- Diamond grade is forecast to rise to 40 cpht after the first eight years
of mining when the deeper, higher grade CK (coherent) kimberlite is
mined.
- A grade of 24 cpht results in annual production of 294,000 carats. A
grade of 40 cpht results in annual production of 490,000 carats.
- Approximately 425,000 tonnes of kimberlite is scheduled to be mined from
stoping development during the 17 months of mine development through to
November 2012 when full-scale commercial production is expected to be
reached.
- Diamond sales revenue from this kimberlite, along with a small tonnage
of tailings and waste rock for road stone, is estimated to contribute
between R90,000,000 (GBP8.04 million) and R116,000,000 (GBP10.35
million) towards mine development costs, depending on grade and carat
value.
- Net capital cost estimates to reach full production range from
R100,000,000 (GBP8.9 million) to R126,000,000 (GBP11.3 million)
depending on revenue generated during development.
- Diamond revenue is estimated to be between R196 (GBP17.50) and R261
(GBP23.30) per tonne.
- Operating costs are estimated to be R105 (GBP9.38) per tonne, resulting
in an initial operating margin of between 46% and 60%.
If the bulk sample is positive in terms of grade and carat value, we will
need to undertake a significant capital raising in order to complete the full
scale mine development. The exact amount of capital required to achieve full
scale mine development will be a function of bulk test grade and carat as
approximately 425,000 tonnes of kimberlite will be extracted during the mine
development process as sub-level stoping is established between the -260m and
the -330m levels. The diamonds recovered from this development kimberlite
will be sold during the development ramp up and the revenue generated booked
as a credit to development costs.
In the past 12 months we have benefited from the continued financial support
of our major and institutional shareholders, and we look forward to their
continued support in achieving our ultimate goal of profitable production
from Lace. The sooner we can raise our development capital after the bulk
test, the quicker we will be able to add value for shareholders by completing
the full scale mine development at Lace.
Botswana Exploration Joint Venture
DiamondCorp is earning a 77.5% joint venture interest in Prospecting Licence
PL/71 in Botswana, immediately south of De Beers` Jwaneng mine, the richest
diamond mine in the world by value. During the year the Botswana Government
renewed the licence for a further two-year term and drilling activities
continued on two of three priority kimberlite targets - J-01, J-05 and J-12.
Five diamond boreholes of HQ size (63.5 mm diameter) core were drilled into
geophysical target J-05 and intersected volcaniclastic kimberlite ("VK") and
coherent kimberlite ("CK") at vertical depths up to 218 metres under a
relatively shallow 28m of Kalahari sand cover. J-05 lies 5 km to the
northwest of J-01, a 10 hectare diamondiferous kimberlite identified by
DiamondCorp drilling last November.
The drilling has shown J-05 to be an elongated kimberlite narrowing to the
east and widening to the west, with an estimated total surface area of
approximately 1.5 hectare, based on drilling to date. Logging of the
boreholes indicates the J-05 kimberlite comprises calcretised kimberlite from
approximately 28m to approximately 50m vertical depth, slumped Karoo
mudstones and VK from 50m to up to 105m vertical depth, and various facies of
VK and CK from 85m to at least 218m, the deepest drill intersections from the
2010 programme.
Eight samples weighing between approximately 50kg and 75kg each were
collected from sections of the J-05 drill core and were despatched to
Saskatchewan Research Council`s laboratory in Saskatoon, Canada, for
microdiamond recovery. The samples were taken from both VK and CK
intersections, and were treated by means of caustic fusion. The samples
yielded 51 diamonds, comprising two macrodiamonds and 49 microdiamonds. One
macrodiamond was white/colourless and one was off-white. (Macrodiamonds are
diamonds that are greater than 0.5mm in the longest axial dimension.)
Encouragingly, the presence of two macrodiamonds suggests the possibility of
a coarse stone size distribution.
Of particular geological interest is the presence of mudstones in the core
which indicates that the kimberlite intruded unconsolidated sediment at the
time of emplacement. In addition, kimberlite is `mixed-in` with these
mudstones in places. The mudstones are most likely to be of Karoo age
(approx. 250 million years ago). These features suggest that the J-05
kimberlite is the same or similar age to the kimberlite being mined by
Debswana at Jwaneng, 10km to the northwest where similar features are known
to be present. Jwaneng is the richest diamond mine in the world measured by
value.
At the J-12 geophysical target within PL/71, four boreholes were completed
with no kimberlite intersected. The geophysical anomaly would appear to be
related to a granitic intrusion and no further work will be undertaken on
this prospect.
We were very pleased that our exploration at PL/71 has so far resulted in two
diamondiferous kimberlites for mini bulk testing, providing us with a
pipeline of promising diamond exploration projects in Botswana in addition to
our long-life Lace diamond mine development in South Africa. Mini bulk
testing of both J-01 and J-05 is scheduled for the second half of 2011, with
a programme of large-diameter (445mm) drill holes to 200m vertical depth. The
samples collected from these holes will be processed through a 2 tonne per
hour dense media separation sampling plant to provide an indicative diamond
grade.
New Opportunities
During the year, a number of other diamond opportunities were assessed, but
none were considered sufficiently attractive to warrant further
investigation. The Company will continue to monitor opportunities as and when
they arise and utilise its in-house skill base and network of external
consultants to secure any other diamond opportunities with the potential to
accrete value for our shareholders.
Funding for the Future
In March 2010, we raised GBP7.1m at 7p per share before expenses to enable us
to resume underground development at Lace and further exploration in
Botswana. We had hoped that this sum would fund us through to bulk sampling
at Lace but as reported above, the need to mine deeper and cost escalations
coupled with the strength of the Rand, necessitated a further placing in
December to raise GBP3m gross at 8.5p.
In June 2011, we raised GBP3.48m gross at 13p to fund our exploration
programme in Botswana and general working capital. To take Lace into full
production and to retire the $1.85 million of equipment debt on our balance
sheet, this year we will seek to raise a further GBP10-12m in the near
future. With this contribution, the total that we will have spent on bringing
the Lace Mine into full production is expected to be around GBP30m. This is a
very low number for a 1.2mtpa operation and we believe is a remarkable
achievement for which we thank all our employees, contractors, advisers and
consultants.
In Conclusion
Mining is a hard industry and we have battled through excessive rainfall,
equipment breakdowns, and often at times poor rock conditions whilst adhering
to stringent safety requirements to achieve our goal of reaching fresh
kimberlite at Lace. We are under no illusion that there will be hurdles ahead
but with the exciting outlook for diamond prices, we can now look forward to
producing revenues and profits from Lace while setting out to sample our two
exciting kimberlite targets in Botswana.
Euan Worthington
Executive Chairman
Paul Loudon
Managing Director
29 June 2011
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