LONDON () -- Diamondcorp [AIM:DCP; JSE:DMC] could be just what the industry's larger players are looking for if its plans to build production at its Lace diamond mine in South Africa's Free State come to fruition as intended.
The company has weathered the extensively documented South African power crisis reasonably well so far, having taken early action and secured a connection to the power supply of De Beers' nearby Voorspoed mine.
This gives Lace two power supplies, each coming from different parts of the Free State, and should help make South Africa's power issues, which seem likely to persist for some time, more manageable.
Nevertheless, Diamondcorp has been put out by the crisis, suffering lost production and prolonged commissioning problems, partly in relation to machinery damage due to supply irregularities.
The Lace plant is now up and running well, and Diamondcorp's CEO Paul Loudon says that the company appreciates having had the chance to shake down the plant while processing tailings, rather than having to handle underground mining at the same time.
Although production is currently from tailings, underground mining at Lace will commence towards the end of the third quarter of this year and by Christmas the company should be processing kimberlite at an initial rate of 1000 tonnes per day, reports Loudon.
The first 20-30,000 tonnes of kimberlite mined will form a bulk sample, the appraisal of which will allow a full feasibility study to be completed for the underground portion of the Lace project.
Looking further forward, Diamondcorp hopes to be processing underground material at the rate of 4000 tonnes per day, the capacity of the plant, by the end of 2009.
It is estimated that the tailings at Lace, which result from operations between 1902 and 1932 following the discovery of the mine in 1896, contain measured and indicated resources of 370,315 carats at a grade of 10.3 carats per hundred tonnes (cpht).
In terms of kimberlite, remaining un-mined is estimated to be an inferred resource of 11.91 million carats between 345 metres and 855 metres at a grade of 42.2 cpht, as well as approximately 6.57 million tonnes of kimberlite above 345 metres at a potential grade in excess of 27 cpht.
These numbers indicate a substantial potential mine life, and even just assuming a grade of 27 cpht and the current 4,000 tonnes per day of processing capacity, in excess of 100,000 carats of annual production could be possible.
The last reported figure for the average value per carat of diamonds recovered from the tailings at Lace by Diamondcorp was $64, while Loudon says that the company is hoping for around double that from underground.
The capital costs of the underground development at Lace are estimated at around ZAR100 million. Some of this will come from cash flow; some from the proceeds of a recently completed ZAR26 million equity placing; some from Diamondcorp's BEE partners, who are expected to chip in following the completion of the feasibility study; and some from bank finance. The latter is currently under negotiation, says Loudon.
The Lace mine is presently held under a New Order Prospecting Right, and is in full compliance with South African Black Economic Empowerment (BEE) legislation, giving Diamondcorp the maximum permitted 74% of the mine. Diamondcorp also holds two additional New Order Prospecting Rights covering areas with exploration potential. According to Loudon, a New Order Mining Right for the mine is in the works.
The company is open to acquisition opportunities, but Loudon says that he and his team have so far not succeeded in finding an asset that stacks up well enough against Lace, as evidenced by the company's decision in October of last year not to exercise an option to acquire Sonop Diamond Mining, a private South African alluvial diamond producer.
But if the Lace mine delivers the goods, Diamondcorp could itself become the focus of a covetous eye looking for an asset with a decent life ahead of it and the heavy lifting of mine planning and construction done. In the nearer term, the feasibility study on the underground development, expected in the first quarter of next year, should be worth looking out for.
