3 Nov 2015 07:00
3 November 2015
DiamondCorp plc
AIM share code: DCP & JSE share code: DMC
ISIN: GB00B183ZC46
(Incorporated in England and Wales)
(Registration number 05400982)
(SA company registration number 2007/031444/10)
("DiamondCorp", "the Group" or "the Company")
Lace DIAMOND mine Project update
DiamondCorp, the Southern African diamond mining, development and exploration company, is pleased to provide the following update on the underground development at the Lace diamond mine in the Free State province of South Africa.
Highlights
· Development work in the Upper K4 (UK4) block is concentrating in kimberlite on the 310m production level in preparation for production ramp up to commence before the end of the year.
· During September tunnelling activities advanced from heavily diluted low-grade K6 kimberlite on the southern side of the kimberlite pipe into a transitional zone into higher-grade K4 kimberlite in the centre of the pipe. As a consequence, ground conditions improved and kimberlite development rates exceeded the monthly call in October.
· Challenging ground conditions reported previously on the 290m doming level have been overcome with the installation of steel arched sets which provide a safe canopy for employees and equipment from potential falls of ground. The void above the canopy is now being back-filled to cushion any potential falls of ground.
· However, the time taken to install the sets and make the area safe has resulted in a delay to the blasting of the slot drive from which the initial tonnage ramp up commences.
· This delay will result in cashflow pressure on the Company's 74%-owned operating subsidiary Lace Diamond Mines (Pty) Ltd in Q1 2016 when debt repayments are due to commence. As a result detailed discussions have been held with the Company's primary lenders and BEE partners regarding options to alleviate cashflow pressures.
· The discussions have been positive and a formal request to continue interest roll-up of the Industrial Development Corporation loan until positive cashflow is achieved has been lodged. Management do not expect any issues with respect to being granted this request.
· The conveyor belt system is fully installed and 80% commissioned. Final electrical connections are underway and the belt is scheduled to be fully commissioned by the end of this week.
· Processing of K6 kimberlite and K4 kimberlite recovered from the production level drives and bulk test sites continued with further encouraging results.
· The final drilling and microdiamond work requested by the Company's geological consultants to complete the resource statement update is underway. The additional work requested will provide greater levels of confidence in the resource estimate and will be completed before year end.
· Development costs to date are averaging R49,993 per metre against a budget of R38,280 per metre as a result of the challenges encountered, including a weaker than expected Rand exchange rate. The commissioning of the conveyors will now have a positive impact on reducing development costs as trucks will no longer be used in decline development to the block cave level.
· Positive test results have been received from initial bulk tests undertaken on an optical/x-ray waste sorting system for the processing plant to optimise processing of the Lace kimberlites.
Underground Development
The Company's 74%-owned subsidiary Lace Diamond Mines (Pty) Limited (LDM) continues with the implementation of the revised development schedule for the ramp up of commercial production from underground kimberlite mining.
Tunnel development during the past quarter concentrated on the 310m production level. Up until September, the tunnelling was taking place in heavily diluted low-grade K6 kimberlite on the southern side of the pipe. Tunnelling in this friable ground requires additional support to ensure safety from potential falls of ground which slowed the rate of advance. Pleasingly, ground conditions have steadily improved as the K6 kimberlite transitions into higher grade, more competent K4 kimberlite in the central section of the pipe and for the month of October kimberlite development rates exceeded our planned monthly call.
The challenging ground conditions encountered on the 290m doming level, as previously reported, resulted in the Company engaging specialist contractors to make the area safe. The contractors recommended and have subsequently installed steel arched sets for a 10m section through the centre of the slot drive cross cut. These sets have been installed without incident, and a safe canopy of cover is now in place to prevent any potential falls of ground from injuring workers or damaging machinery. When back-filling has been completed, the tunnel will be available for the slot drive to commence and the mining ramp up to begin during December.
As a result of the challenges with the cross cut on the 290m level, the Company and its mining consultants have revised the tunnel layout on the 310m production level, resulting in staggered breakaways left and right rather than full cross cuts. This revision to the layout will reduce rock stresses without impacting mining rates, and minimises the chances of similar incidents occurring.
During the period, the Company announced completion of the 400 tonne per hour underground conveyor belt system from the first production level to the surface. Commissioning of the conveyor belts is 80% complete and is progressing well. The belts are scheduled to be fully commissioned by the end of this week. When the conveyor is in operation, trucks will only be used to haul kimberlite from the production level to the conveyor belt tipping chamber. No trucks will be used for the continued decline development in waste rock down to the block cave level as the conveyor belt will be extended as the decline progresses. All the required conveyor belt steelwork, drive motors and conveyor belting for the continued extension down to the block cave level are on site, protecting the Company against future price increases and further weakening in the value of the rand.
Development costs for the project to date have averaged R49,993/m against a budget of R38,280/m, with the weakening Rand continuing to impact negatively on development costs. Following commissioning of the conveyor belts, the Company is expecting a reduction in development costs and an acceleration in development rates.
The delay to the commencement of the slot drive resulting from making the 290m level safe means that the Company is now behind schedule on diamonds recovered from development. Mining of the slot drive to provide initial ramp up tonnages had originally been scheduled for August but will now only commence in December. This delay combined with management's preference for not selling sub-optimal diamond parcels in a weak diamond market will put pressure on LDM's cashflow in Q1 2016 when debt repayments are scheduled to commence. As a result detailed discussions have been held with the Company's primary lenders and BEE partners regarding options to alleviate cashflow pressure. The discussions have been positive and a formal request to continue interest roll-up of the Industrial Development Corporation loan until positive cashflow is achieved has been lodged. Management do not expect any issues with respect to being granted this request.
K6 and K4 kimberlite processing
Processing of K6 and K4 kimberlite from development tunnels in the UK4 Block continued during the period and management continues to be pleased with the quality of the diamonds recovered.
The kimberlite being processed from development drives is being monitored by the Company's geological consults MPH Consulting Limited of Toronto as a controlled bulk test for incorporation into the upgraded resource statement. Work on the resource statement during the period concentrated on correlating microdiamond analysis from actual recoveries in bulk sample sites to ensure accuracy and confidence in the quality of the resource estimate at deeper levels. Because the distribution of internal waste in the kimberlite which determines overall diamond grade is not homogenous, the more of this correlation work which is undertaken, along with the density and dilution data derived from the delineation drilling, the greater the levels of confidence which can ascribed to the resource estimate. MPH requested an additional delineation drill hole and further microdiamond analysis which is being completed. Management is committed to ensuring that the finalised document is without qualification and comprehensively presents the potential of the Lace project when being assessed by analysts and the investment community. The report will be completed by year end.
During the period, the Company conducted an independent commercial valuation of the Lace diamonds recovered to date. The valuation was undertaken by the Company's independent agent in Antwerp, Natural Diamond Corporation NV. Pleasingly, the valuation predicts diamond sales should average between US$140 and $160 per carat at a 1.00mm bottom screen size cut off and between $160 and $220 per carat at a 1.25mm bottom screen size in the current weak market. These valuation ranges exclude the occurrence of larger high value stones, the frequency of which is yet to be established.
Plant and resource optimisation
The Company's 220 tonnes per hour (tph) dense media separation plant operated efficiently on a batch basis during the period, processing 5,825 tonnes of K6 and K4 kimberlite bulk samples extracted from the development tunnels.
A 3-tonne bulk sample of the Lace kimberlites was despatched to Johannesburg for testing using one of the high volume optical/x-ray waste sorters the Company has been investigating. The test work was very positive, and demonstrated that the majority of the waste can be ejected ahead of the DMS processing plant. This technology combined with the significant water savings generated from the installation of the de-grit circuit means there is potential for Lace to be mined at a faster rate than is currently planned which will have a positive impact on mine economics and the NPV of future cashflows.
Competent Person
Mr. Paul Sobie, P.Geo., President of MPH Consulting Limited, being an Independent Qualified Person and a member in good standing of the Association of Professional Geoscientists of Ontario, Canada: Membership # 0374, has reviewed and approved the technical content of this news release.
Contact details:
DiamondCorp plc
Paul Loudon, Chief Executive
Tel: +27 56 216 1300
Euan Worthington, Chairman
Tel: +44 7753 862 097
UK Broker & Nomad
Panmure Gordon (UK) Limited
Dominic Morley/Adam James
Tel: +44 20 7886 2500
JSE Designated Advisor
Sasfin Capital (a division of Sasfin Bank Limited)Megan Young
Tel: +27 11 445 8068
SA Corporate Advisor
Qinisele Resources Proprietary Limited
Dennis Tucker/Andrew Brady
Tel: +27 11 883 6358