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DiamondCorp grows in S.Africa, comes to JSE
Allan Seccombe
Posted: Wed, 15 Aug 2007

[miningmx.com] -- AIM-TRADED DiamondCorp will bring kimberlite, tailings and alluvial diamond production to the main board of the JSE by end-October ahead of a cash raising exercise for its key underground project, CEO Paul Loudon said on Wednesday.

DiamondCorp, not to be confused with Theo Botoulas’s Diamond Core, has an option to buy Sonop, a private South African alluvial diamond miner, for $45m in cash and 7.5 million shares in a transaction to be completed next year.

Most of that cash will be raised via debt because Sonop’s cash flow is strong. DiamondCorp’s shares shot up 8.4% to 103 pence, giving it a market capitalisation of Ł36m.
the last piece of the puzzle
DiamondCorp will not raise cash immediately upon listing, but it is expected to bolster its cash reserves shortly after the listing by issuing shares to improve liquidity. Investec is sponsoring and advising DiamondCorp.

However, the flagship project is the phase two development of Lace, an underground kimberlite mine near Kroonstad in South Africa’s Free State province.

A tailings project at Lace is currently processing 70-year-old tailings with a grade of 10 carats per hundred tonnes. DiamondCorp will achieve revenues of $6.50 a tonne against costs of $2.50/tonne and will produce some 144,000 carats/year.

DiamondCorp is refurbishing an existing 360m deep shaft at the mine, which ceased production early in 1930, in order to take a 20,000 to 30,000 tonne bulk sample from 100m below old workings in a 14-month programme. The bulk sampling will cost $2m.

“That will fill in the last piece of the puzzle we need, which is what exactly the grade is at the level at which we’ll start mining,” Loudon told Miningmx.

“We’ll do a pattern of drives at the 360m level through the orebody to take samples through the whole pipe. Those drives then form the basis of the block-cave that will be developed for the commencement of phase two,” he said.

Underground mining, in the upper levels of the pipe, will generate estimated revenues of $35/tonne and costs of $17/tonne. The mine is forecast to produce 400,000 carats/year.

DiamondCorp, which was admitted to AIM in February, has Cyril Ramaphosa’s Shanduka as a 13% empowerment partner at Lace and a second empowerment group holding another 13%, meeting the company’s empowerment equity requirements under South Africa’s new mining laws.

It is speaking to those same partners to take stakes in Sonop.

Empowerment equity ownership of at least 26% by 2014 is one of the social and labour requirements stipulated by law for a company to secure new-order mining and prospecting rights.

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The plan is for the mine to seamlessly provide feed to the 1.6 million tonnes/year dense media separation plant currently processing the 3.5 million tonnes of tailings over the next two years to produce some 360,000 carats valued at about $70/carat.

“A lot of mines in South Africa were retreated at various times over the years. This is one of those where nothing has been done to it for 75 years,” Loudon said.

DiamondCorp will recoup $14.5m from the tailings operation alone. It paid R15m ($2m) for the asset owned by Sonop’s owner Chris Potgeiter, who will become a 20% shareholder in DiamondCorp with the conclusion of the Sonop transaction.

Potgeiter bought the mine from De Beers, which purchased the mine in 1939 but did not mine it. The mine was operational from 1901 to 1930 when diamond prices collapsed in the Great Depression.

“This project only became available and is in production again because of South Africa’s new mining laws,” Loudon said, referring to the use-it-or-lose-it aspect of the legislation.

Phase Two at Lace will be funded via debt and internal cash flows coming mainly from Sonop, which has operations between Douglas and Prieska on the Middle Orange River in the Northern Cape province as well as Windsorton and Sidney-on-Vaal. DiamondCorp has not finalised the capital requirement for the project.

Sonop will add $20m in operating profit to the DiamondCorp from its annual production of some 93,000 carats of high quality diamonds worth around $700/carat.

DiamondCorp’s focus is strongly on South Africa and it is keen on producing assets rather than exploration ventures.

“We’ll look at southern Africa, but we are quite focussed on what we’re doing. For us to move into another country now would be a big step for us. You can’t do something like that lightly,” Loudon said.

“In the years ahead, when we are a viable alternative to the major companies as a partner for production for companies exploring in other country, yes, but right now, no.”