| Mon 30 Jan 2012, 9:00 | | 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 mine development plans at the Lace mine in
South Africa.
HIGHLIGHTS
* Negotiations are progressing with numerous parties interested in providing
debt facilities to finance the development of the Lace diamond mine.
* Indicative terms suggest that equity dilution for existing shareholders can
be minimised.
* SRK Consulting is working on the Independent Engineering Report required to
secure debt finance, with delivery scheduled for next month.
* Geotechnical testwork on the Lace kimberlite samples reveals high rock
strength which has positive implications for tunnel life in the Lace block
caves but means the first block cave needs to be located deeper than
originally planned to ensure sufficient rock pressure for caving.
* New mine optimisation studies have recommended the 47 Level (470m depth) as
a suitable development level. This means 12 million tonnes of kimberlite
will be mined in the first block rather than 6.5 million tonnes, and brings
higher grade, more valuable kimberlite earlier into the mine plan.
* Detailed in-house costing estimates that a block cave on the 47 Level will
cost R450 million ($58 million), including a contingency of approximately
R60 million ($7.7 million) - 11 per cent more than the previous mine plan.
* Approximately R432 million ($55 million) in revenue is forecast to be
generated from diamonds recovered from the undercut, initial caving and
tailings retreatment, as well as sale of waste rock - 127% higher than the
previous mine plan.
* The maximum cash drawdown during development is estimated at approximately
R250 million (US$32 million) in month 21 of the development schedule, with
almost all the development capital repaid by month 33 when caving reaches
the 4,000 tonnes per day full production rate.
* The working capital requirement for the mine development is approximately
R100 million ($12.8 million) more than the original Lace mine plan.
However, because of the forecast higher diamond grade at the 47 Level,
initial diamond production is estimated at more than 400,000 carats per
annum resulting in faster payback and operating margins in excess of 65 per
cent.
* At this production rate and current diamond prices of $160/ct, initial
annual revenue would be in excess of US$60 million.
* The detailed cost estimates will be reviewed by SRK Consulting as part of
their Independent Engineering Report.
* Underground drilling has confirmed the presence of a bulge in the Lace
kimberlite between the 24 Levels and the 33 Levels on the southern side of
the pipe. DiamondCorp will investigate early mining of this kimberlite by
rim loading simultaneous with block cave development.
Commenting on financing and engineering developments, DiamondCorp CEO, Paul
Loudon said: `The long-term metrics for the diamond industry are very strong.
Few new long-life kimberlite mines are in the planning, in a market where end
users are scrambling to secure supply. For this reason, we have a significant
number of debt providers interested in committing development finance for the
Lace mine.
`Discussions range from partial debt financing and convertible structures, to
complete debt financing and off-take agreements. Ultimately, the financing path
chosen will be determined on the basis of the least dilutive route for existing
shareholders. I would expect that the preferred financing option will be
determined shortly after SRK deliver our Independent Engineering Report this
quarter and that full-scale mine development should commence by the middle of
the year.
`The increased depth for the first block cave results in a far more robust
mining project, as bringing the higher grade kimberlite earlier into the mine
plan has a very positive impact on cashflow.`
LACE FINANCING OPTIONS
DiamondCorp has entered into discussions with more than six different parties
with respect to potential debt finance facilities for the development of the
Lace mine. In addition to traditional banks, the Company is also in discussions
with trade financiers, Government development agencies and other mining
companies in a bid to find the finance option which maximises return and
minimises dilution to existing shareholders. Indicative terms discussed to date
suggest that equity dilution can be minimised.
In order to secure debt financing, DiamondCorp has appointed SRK Consulting to
complete the necessary Independent Engineering Report ("IER") which will provide
the Company and financiers with an independent opinion on the proposed mining
method, mine plan and detailed financial model for Lace. Work on the IER is
advancing well, and the report is scheduled to be completed in the current
quarter.
GEOTECHNICAL TESTWORK AND MINE PLAN REVISION
DiamondCorp has completed rock strength tests on samples of the brown
volcanoclastic kimberlite extracted from the 26 Level during the bulk test last
October. The results reveal rock strengths of between 100MPa and 170MPa. This is
rock strength is high compared with other kimberlites where rock strengths are
typically in the range 50MPa to 100MPa. The higher rock strength means that
tunnels on the production level in the block cave should have a long life
without the requirement for major secondary support. This should have a positive
impact on capital and operating costs over the life of the block. However, the
high rock strength means that the first block cave will need to be located
deeper than planned to ensure there is sufficient rock pressure for caving to
initiate. Once caving starts, all the kimberlite above the production level
falls down by gravity and is extracted from below.
New mine optimisation studies completed during January have recommended the 47
Level (470m) for the first block cave, 130m deeper than originally planned.
Locating the first block cave production tunnels on the 47 Level has the
following positive impacts:
* The tonnage to be extracted from the first block increases by 84 per
cent from 6.57 million tonnes to 12.12 million tonnes.
* The contained diamonds in the block increases 114 per cent from 1.6
million carats to 3.4 million carats.
* The cave will be located in a higher grade kimberlite, with average
grades estimated at 40 cpht in this part of the pipe due to the
predominance of higher grade coherent kimberlite ("CK")
* The cave life increases from five years to nine years.
* Only three caves will be required to mine Lace to the 85 Level,
compared with four in the previous mine plan.
Locating the cave on the 47 Level has an 11 per cent impact on capital costs -
R450 million ($58 million) compared with R405 million ($52 million) - and
increases the ramp up to full production from 24 months to 33 months. The R450
million includes contingencies of R60 million ($7.7 million).
During the 33 months to full production, approximately R432 million ($55
million) in revenue is forecast to be generated from diamonds recovered from the
undercut, initial caving and tailings retreatment, as well as sale of waste rock
- 127% higher than the previous mine plan.
The maximum cash drawdown during development is estimated at approximately R250
million (US$32 million) in month 21 of the development schedule, with almost all
the development capital repaid by month 33 when caving reaches the 4,000 tonnes
per day full production rate.
The working capital requirement for the mine development is approximately R100
million ($12.8 million) more than the original Lace mine plan. However, because
of the forecast higher diamond grade at the 47 Level, initial diamond production
is estimated at more than 400,000 carats per annum, resulting in faster payback
and operating margins in excess of 65 per cent. At this production rate and
current diamond prices of $160/ct, initial annual revenue would be in excess of
US$60 million. The detailed cost estimates will be reviewed by SRK Consulting as
part of their Independent Engineering Report.
THE BULGE
A programme of underground drill holes has confirmed the presence of a bulge in
the Lace kimberlite between the 24 and 33 Levels. The bulge means the area of
the pipe at the 33 Level is approximately 50 per cent greater than the pipe at
the 24 Level. DiamondCorp will now investigate early mining of this kimberlite
by rim loading, a mining method which was used by De Beers at Finsch and
Kimberley mines. This additional tonnage and potential for earlier cashflow is
not taken into account in the current mine plan.
BOTSWANA
Large diameter drilling of J-01, a 10ha diamondiferous kimberlite 9km from De
Beers Jwaneng mine in Botswana, was completed last week. The samples are
currently being processed at the Lace Mine, after delays were encountered in
getting the material across the border from Botswana to South Africa. Results
from this sampling will be released as soon as they are to hand. Previously
announced results from the mini-bulk sample of the J-05 kimberlite are currently
being evaluated.
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 2010.
London
30 January 2012
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 2308
Ewan Leggat, Fairfax I.S. plc +44 207 598 5368
Guy Wilkes, Ocean Equities Limited +44 207 786 4370
John-Paul Dicks, PSG Capital (Pty) Limited +27 21 887 9602
Charmane Russell/Marion Brower, Russell & Associates +27 11 880 3924
Date: 30/01/2012 09:00:01 Produced by the JSE SENS Department.
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