| Wed 5 Oct 2011, 8:00 | | DMC - DiamondCorp plc - Operational update |
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DMC
DMC
DMC - DiamondCorp plc - Operational 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`)
OPERATIONAL UPDATE
DiamondCorp plc, the African diamond mine development and exploration
company, is pleased to provide an update of kimberlite bulk testing and
mine development plans at the Lace mine in South Africa.
KEY POINTS
- Lace mining grade confirmed at 26 carats per hundred tonnes ("cpht").
- Diamonds valued at $160 per carat in the current softer market for
diamonds.
- +25-year mine life, project NPV of GBP117 million and IRR of 78%.
- Life of mine cashflow of almost R6 billion (GBP600 million).
- Old plans show pipe diameter increases significantly at depth.
- Management now recommends to the board that the Company proceeds with
the necessary GBP11.4 million capital investment for full-scale
underground mine development.
HIGHLIGHTS
- Bulk sampling has been completed at the Lace mine between the 25 and
26 levels.
- Three volcaniclastic kimberlite ("VK") types were encountered and
sampled - a pinkish brown VK grading 26 carats per hundred tonne
("cpht"), a grey VK grading 14 cpht and a cointact VK grading 9 cpht.
Only the brown VK falls into the mine plan.
- The high grade brown VK kimberlite represents approximately 40 per
cent of the pipe at the sampling level and from previous drilling is
known to predominate across the entire pipe at the 34 level where full-
scale mining will commence.
- The lower grade contact VK and grey VK kimberlites, which contain a
greater fraction of broken up volcanic lavas and other non-kimberlitic
rocks than the brown VK, were not encountered in previous drilling
campaigns which intersected the pipe at greater depths and are not
expected in any significant volume at the mining level.
- The 26 cpht grade of the brown VK is in line with management
expectations of 24 cpht and demonstrates a strong correlation with
microdiamond analysis of previous core drilling below the old workings.
- More than 80 per cent of the diamonds by weight are gem quality and
37 per cent are larger than one-third of a carat. The largest gem diamond
recovered is 20.58 carats. A 1.01 carat pink diamond was also recovered.
- The diamond quality is better than anticipated and the first 1,500
carats run of mine recovered from the bulk test have been valued in the
current market by the SA Diamond Exchange at $160 per carat.
- Given the presence of lower grade kimberlites between the 25 and 26
levels and the difficult ground conditions in and around old workings,
the proposed mine plan to establish a `clean up` level to extract
kimberlite above the 29 level by sub-level stoping has been re-assessed
and deemed to be a sub-optimal development path.
- The better development option is now considered to be a block cave on
the 34 level in virgin higher grade kimberlite, 10m below any old
development tunnels. This block cave will extract a minimum of 3 million
tonnes over 2.5 years while a second block cave is established on the 44
level which will provide approximately 6.75 million tonnes of kimberlite
for the subsequent five years. This development will then replicated in
100m blocks to the 84 level (840m depth), accessing a total of 28 million
tonnes of kimberlite over a 25 year period.
- The capital cost for the initial 34 Block Cave is estimated at R143
million (GBP11.4 million) which is 15% higher in rand terms than the base
case development cost announced in June of this year, but flat in terms
due to the recent weakening in the value of the rand. Subsequent cave
development will be funded entirely from cashflow.
- The ramp up to full-scale production is estimated at 19 months with
ore to be transported to the surface by conveyor belt at a rate of 4,000
tonnes per day.
- Using an average carat value of $160 per carat, the Lace project
financial model shows a net present value at 10% discount of GBP117
million and an internal rate of return of 78%.
- A potential bonus has been identified with respect to kimberlite
tonnage at depth based on the accuracy of the old mine survey plans, with
a strong possibility that the Lace pipe is 50% larger in size at the 33
level than at the 25 level.
- Management has recommended the Company proceed with full-scale mine
development based on a life of mine exceeding 25 years, producing more
than 435,000 carats per annum at peak production and life of mine
cashflows of almost R6 billion (GBP480 million).
Commenting on the bulk test results, DiamondCorp CEO, Paul Loudon said:
`We are delighted that the effort and challenges in opening up and
sampling an old kimberlite mine has been rewarded with diamond quality
exceeding expectations and that the potential cashflows are now
anticipated to be significantly higher than originally thought. Not only
is the grade and carat value better than anticipated, the pipe also
appears to be getting larger at depth.`
BULK SAMPLE RESULT - KIMBERLITE GRADES
The aim of the bulk sampling programme was to provide management with
sufficient comfort in grade and carat value to proceed with full scale
underground mine development at Lace. The first objective of the bulk
test was to map and sample all of the kimberlite types which exist across
the extent of the pipe on the 25 and 26 levels, then correlate these
results to the geological model based on core drilling below the 33
level. Despite difficult ground conditions making sampling progress much
slower than planned, the first objective of the bulk sample has been
achieved.
Three types of kimberlites were encountered during the bulk sampling -
pinkish brown VK kimberlite, a grey VK kimberlite and a contact VK which
the old miners referred to as "stony ground". Of these three kimberlite
types, the brown VK is the kimberlite carrying the least amount of
dilutive country rock and hence the best diamond grade. The 2,670 tonnes
of brown VK sampled returned a grade of 25.87 cpht. The contact
kimberlite and the grey VK returned grades of 9.09 cpht and 13.6 cpht
respectively. Mapping of the sampling drives and old tunnels undertaken
during the sampling programme shows approximately 40 per cent of the area
of the pipe between the 25 and 26 levels comprises brown VK,
approximately 45 per cent of the pipe is grey VK and 15 per cent is
contact VK.
Re-examination of the drill core by our geological consultants has
confirmed that the brown VK predominates across the entire pipe at the 34
level. Neither the contact VK nor the grey VK were encountered in core
drilling below the old workings at Lace. This is in line with the old
mine records which indicate that diamond grades improve with depth at
Lace.
The bulk sampling results show an excellent correlation with the
microdiamond results from the drilling which predicted a grade of 25-28
cpht in the brown VK kimberlite below the old workings.
The grade results from the kimberlite bulk sampling are summarised in the
following table.
Kimberlite Tonnes Carats Recovered Estimated Estimated area
type sampled recovered grade in area of the of the pipe at
carats per pipe at the the 34 level
hundred 25 level from drilling
tonnes from
(cpht) sampling
Not encountered
Contact VK 6,425 583.81 9.09 15% in drilling
Not encountered
Grey VK 6,319 882.85 13.60 45% in drilling
Brown VK 2,670 690.75 25.87 40% Predominates
across the pipe
TOTAL 15,414 2,157.41 100%
BULK SAMPLE RESULT - CARAT VALUE
The second objective was to recover sufficient diamonds to be confident
in the carat value of the Lace diamonds. Difficult ground conditions in
and around the drives from the old mining operations has made the
original target of extracting 30,000 tonnes and +3,000 carats impossible
to achieve in a safe and timely manner. A total of 15,414 tonnes of the
three kimberlite types has been processed. From this kimberlite, a total
of 2,157.41 carats were recovered. While this is less than the 3,000
carat ideal parcel size for valuation certainty, the consistency of the
production and the fact that the parcel is not skewed in any way by one
or two exceptional value stones leads management and the valuers at the
SA Diamond Exchange to believe that a carat value of $160 should be
consistently achievable from Lace production in the current market,
taking into account that prices have weakened up to 25 per cent in recent
weeks.
This carat value is 33.3 per cent higher than the Company`s original base
case of $120 per carat. Approximately 80 per cent of the diamonds
recovered by weight are gem quality, and 37 per cent are larger than one-
third of a carat. The biggest gem recovered is a 20.58 carat diamond.
Photographs of the diamonds recovered and the kimberlites sampled are
available on the Company`s web site at www.diamondcorp.plc.uk.
REVISION OF MINE PLAN
Given that only 40% of the pipe area at the 25 level is brown VK
kimberlite, the Company`s development plan announced in June of this year
has been reveiwed in light of the reduced tonnage of higher grade
kimberlite available for mining above the planned initial 29 sub-level
stoping level. Further, the difficult ground conditions in and around old
tunnels has convinced management and its consultants that the first
production level should be in virgin kimberlite on the 34 level, some 10m
below any old development drives put in place during previous mining
activities. The poor ground conditions encountered during bulk sampling
will have no impact on production in full-scale mining, and, ironically,
should assist with caving of the kimberlite.
Working in conjunction with the DiamondCorp`s kimberlite mining
consultant Mr Bob Harverson, a new development plan has been finalised
which lays out an initial block cave on the 34 level. The layout of the
block cave is based on the B4 block cave successfully implemented by De
Beers on the 425m level at the Premier mine (now Cullinan mine) in the
mid-1970s. Mr Harverson was a member of the B4 development team.
The 34 Block Cave is designed to extract a minimum of 3 million tonnes of
kimberlite over a 2.5 year period from the 5.4 million tonnes available
above the 34 level while a second identical block cave is stabled on the
44 level. The 44 Block Cave will access approximately 6.75 million tonnes
of kimberlite during the subsequent five years. This development will
then be replicated in 100m blocks to the 84 level (840m depth), accessing
a total of 28 million tonnes of kimberlite over a 25 year period. The 44
Block Cave and subsequent mine development will be funded out of
cashflow.
The capital cost for the 34 Block Cave is estimated at R143 million
(GBP11.4 million) which is 15% higher in rand terms than the base case
development cost announced in June of this year, but flat in pound terms
due to the recent weakening in the value of the rand. The ramp up to full-
scale production is estimated at 19 months with ore to be transported to
the surface by conveyor belt at a rate of 4,000 tonnes per day.
The capital cost comprises 4,400m of new access and conveyor belt decline
development and tunneling to the 36 level(R70 million, net of R25 million
of revenues generated during the development period) and new plant and
equipment (R73 million), including draw point development and conveyor
belts from the crushing chamber on the 35 level to surface (R33 million),
rebuilds and upgrades to the mining fleet (R11 million), upgrades on
surface including an electrical feeder bay and upcast ventilation fans
(R9 million) and contingency (R13 million).
A positive outcome of the bulk sample has been discovering the accuracy
with which the old mine survey plans were drawn. All development drives
as shown on the old plans are within 0.5m of their actual position in
three dimensions when surveyed by modern methods. This opens up the
strong possibility that the Lace pipe increases in size at depth as the
old plans show a 50 per cent increase in the size of the pipe at the 33
level compared with the 24 level.
Based on the success of the bulk test, management has recommended the
Company proceed with full-scale mine development. Life of mine is
expected to exceed 25 years, produce more than 435,000 carats per annum
at peak production and generate cashflows of almost R6 billion (GBP480
million).
BACKGROUND - LACE MINE, FREE STATE PROVENCE, SOUTH AFRICA
The Lace diamond mine is located 25km northwest of the town of Kroonstad
within the Free State Province of South Africa. The mine operated from
1896 to 1931, and according to mine records produced approximately
700,000 carats of diamonds from 4.5 million tonnes of kimberlite at a
recovered grade of 16 cpht. The production was reported to be high
quality, white diamonds, with the biggest stones recorded historically
being 122 and 86 carats. The kimberlite was mined by open pit to
approximately 100m depth, then by underground methods to 240m depth. In
1920s, higher grade kimberlite was encountered as the workings went
deeper, and a decision was taken to develop a 6.5m x 2.5m vertical shaft
to the 36 level (360m) and pre-develop the kimberlite between the 24
level and the 33 level with 2m x 2m development drives.
The vertical shaft and development drives were completed in 1930, a year
before the mine closed when diamond prices collapsed in the Great
Depression. The mine was then kept dewatered until 1939, when it was
acquired by De Beers Consolidated Mines Limited. De Beers never operated
the mine, but instead let it flood, thereby sterilising the resource as
part of their control of the supply side of the diamond industry.
Following progressive changes to the mining law in South Africa,
DiamondCorp acquired the property from the Christiaan Potgieter Trust in
2006 in conjunction with Black Economic Empowerment partners Shanduka
Resources and Sphere Investments.
In 2007, DiamondCorp constructed a 1.2 million tonne per annum dense
medium separation plant at Lace and commenced treatment of approximately
3.4 million tonnes of kimberlite tailings from the mining activities
which took place between 1896 and 1931. Approximately 1.1 million tonnes
of tailings were treated at a recovered grade of 8 cpht. At the same
time, a 4.5m x 4.5m decline was commenced to access and bulk test the
kimberlite below the previous mining levels. Decline development and
tailings re-treatment ceased at the end of 2008 when diamond prices fell
by 50 per cent during the credit crisis. Decline development resumed in
May 2009 and reached the kimberlite sampling level 25 in May of this
year.
London
5 October 2011
The Competent Person responsible for the technical information contained
in this announcement is Mr Paul Zweistra (Pr. Sci. Nat., Registration
number 400016/93) a full-time employee of VP3 Geoservices (Pty) Ltd. VP3
and Mr Zweistra have revieved the information contained herein and
approved the contents of this press release.
AIM Nomad: Fairfax I.S. PLC
AIM Brokers: Fairfax I.S. PLC, Ocean Equities Ltd
JSE Sponsor: PSG Capital (Pty) Limited
DiamondCorp plc, Paul Loudon +44 20 3151 0970/+27 56 212 2308Ewan Leggat,
Fairfax I.S. PLC +44 207 598 5368Guy Wilkes, Ocean Equities Limited +44
207 786 4370John-Paul Dicks, PSG Capital (Pty) Limited +27 21 887
9602Charmane Russell/Marion Brower, Russell & Associates +27 11 880 3924
Date: 05/10/2011 08:00:10 Produced by the JSE SENS Department.
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