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27 Jan 2009 10:00
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")
MARKET UPDATE
DiamondCorp plc, the South African diamond mining company, is pleased to provide the following update on its activities for the 12 months ended 31 December 2008.
Highlights
- Lace tailings re-treatment recovered 50,521 carats of diamonds in the year.
- Recoveries averaged 6.28 carats per hundred tonnes (cpht) and approximately 70% of diamonds recovered were gem quality. Recoveries improved to 7.23 cpht in Q4 following re-commissioning of the recrush circuit.
- 31,906 carats of gem diamonds were sold at tender in Johannesburg for R14,129,203 (US$1.707 million) at an average price of US$53.52 per carat.
- Diamond prices suffered a significant drop in the second half, with final tender sales in November achieving 50 per cent of the prices received earlier in the year. As a result tailings re-treatment is no longer economic and this activity has ceased.
- Mining right granted for the Phase Two Lace underground development, and initial mining of kimberlite from the Satellite pipe has commenced.
- Access to potentially high-grade, high-value hypabyssal kimberlite from the Main pipe is being accelerated.
- Kimberlite will be stockpiled until March when a new primary crushing circuit is commissioned.
- £3.55 million of equity capital was raised through two share placements during the year, and a project loan of US$5.0 million was secured, providing all the required debt and equity for the Phase Two.
- In November, the European Islamic Investment Bank became DiamondCorp's largest shareholder. Mr Robin Henshall, EIIB's Head of Private Equity, joined the Board of the Company.
- Group cash balances at 31 December totalled R45.2 million (£3.3 million) and long-term debt was US$5.0 million (£3.45 million). The project loan is a 36 month facility with capital repayments of US$0.5 million in April 2010, US$1.0 million in October 2010, US$1.5 million in April 2011 and US$2.0 million in October 2011. The interest rate is fixed at 12%.
Commenting on the period, DiamondCorp CEO Paul Loudon said: 'The decision last year to accelerate development of the Lace underground mine has proven to be timely, with mining of higher value kimberlite now underway and able to take over from tailings re-treatment activities, which have become uneconomic as a result of a fall in diamond prices.
'Importantly, we have also been granted the mining right for the underground, meaning we are not limited in any way in the speed with which we can ramp up to full underground production. As a result we have ceased tailings re-treatment and are able to now focus all our efforts on maximising higher value underground production, including accelerated access to the potentially very high-grade hypabyssal kimberlite in the Main pipe.
'The world wide economic downturn has impacted significantly on the diamond market, with prices received for Lace diamonds falling 50 per cent during the fourth quarter of 2008. The accelerated Phase Two development programme targets kimberlite with the potential for profit at these lower prices.
'Despite difficult debt and equity markets for junior resource companies, we are pleased to have raised sufficient debt and equity during 2008 to fund this accelerated development programme.
'While the reduced demand and lower diamond prices are expected to be sustained throughout 2009, the impact on DiamondCorp is cushioned somewhat by the depreciation of the South African rand against the dollar.
'I am confident that DiamondCorp is positioned well to weather these challenging trading conditions, as it reaches the final stretch in the development of the high-value, long-life Lace mine.'
South African Operations - Lace Diamond Mine (DiamondCorp 74%)
DiamondCorp's 74%-owned Lace diamond mine is located 200km southwest of Johannesburg in the Free State Province of South Africa. The project comprises the Lace kimberlites which have the potential to support a +20-year underground mining operation and tailings from previous mining operations which were treated throughout 2008 while access to the kimberlite pipes was established.
Approximately 35 million tonnes of kimberlite have been outlined in the main Lace pipe between the 240m and the 855m level, containing an estimated 13.8 million carats of diamonds at an average grade of 42 cpht. Up to a further 7 million tonnes of kimberlite exists above the 240m level, but is not taken into account in the Company's resource estimates due to the existence of old workings. Nonetheless this remnant kimberlite, much of which is expected to be high-grade hypabyssal material, will be mined once access to the old workings is achieved. A further 3.5 million tonnes of kimberlite also exists in a Satellite pipe 30m to the west of the main pipe. The Satellite pipe was historically a lower diamond grade than the main pipe and no tonnage from this pipe has been incorporated into resource estimates.
A new 4m x 4m decline has been sunk between the Lace pipes and the existing 6m x 2.7m vertical shaft using the Company's own underground mining fleet. This decline accessed the Satellite pipe late in 2008 and holed through the side wall of the main Lace pit in early January, allowing ventilation equipping to be established.
Late in 2008, the Department of Minerals and Energy granted a mining right for the Lace underground development, which is scheduled to be executed in Welkom on 5 February 2009.
An initial 20,000-30,000 tonne bulk sample is now being extracted from the Satellite pipe while the decline continues around to access potentially high-grade hypabyssal kimberlite in the Main pipe during the second half of 2009. If Satellite pipe grades allow for profitable mining at current prices, then mining of this material will continue until the Main pipe material is accessed. The initial mining rate is 1,000 tonnes per day, with plans to increase this to 3,000 tonnes per day by the second half of 2009.
Re-treatment of Lace tailings continued during 2008, with 803,810 tonnes treated for the recovery of 50,521 carats of diamonds, of which approximately 70% were gem quality. Total recovery over the period averaged 6.28 carats per hundred tonnes (cpht) and were lower than anticipated due to failures in the re-crush circuit which were not resolved until October with the installation of a new vertical spindle impact (VSI) crusher to replace the failed cone crusher. Successful commissioning of the VSI crusher saw recoveries improve to 7.23 cpht in the final quarter. Overall recoveries in Q4 were hampered by mining of a lower grade zone of the dump containing old slimes and non-kimberlitic material. The fall in diamond prices suffered during Q4 has rendered the tailings re-treatment operation uneconomic and this activity has now ceased while the plant is re-configured for the commencement of kimberlite processing in March. Recommencement of this activity will be assessed when diamond prices recover.
Seven diamond tenders were held in Johannesburg during 2008, with 31,906 carats of gem diamonds being sold for total revenue of R14,129,203 (US$1.707 million) at an average price of US$53.52 per carat. Non-gem diamonds totalling 12,493 carats were sold for R137,112 (US$16,821) during the year. From the third quarter onwards, all production was first offered to the State Diamond Trader which has the right to negotiate the purchase of up to 10 per cent of the production.
The operational issues experienced early in 2008 have been resolved and the Lace processing plant is now operating to design capacity. No power outages occurred following connection mid-year to the new Eskom power line supplying the nearby Voorspoed diamond mine operated by De Beers.
Corporate
Equity of £3.55 million was raised through two share placements during 2008, and a project loan of US$5.0 million was secured, providing all the required debt and equity for Phase Two underground development at Lace.
The project loan is a 36 month facility with capital repayments of US$0.5 million in April 2010, US$1.0 million in October 2010, US$1.5 million in April 2011 and US$2.0 million in October 2011. The interest rate is fixed at 12%.
After participating in a private placement and acquiring additional shares on market, the European Islamic Investment Bank has become the Company's largest shareholder. Mr Robin Henshall, EIIB's Head of Private Equity, joined the DiamondCorp board.
During the year, the Company assessed a number of other diamond production opportunities but none of these achieved the Company's hurdle rate for project scale or profitability.
On behalf of the board
Euan Worthington
Chairman
27 January 2009
London
Sponsor:
Investec Bank Limited
For further information, please contact:
Paul Loudon
DiamondCorp plc
+44 20 7256 2651
Joe Nally/Liz Bowman
Cenkos Securities plc
+44 20 7397 8900
Robert Smith/Tanis Crosby
Investec Bank Limited
+27 11 286 7662
Charmane Russell
Russell & Associates
+27 11 880 3924
Gareth Tredway/Jos Simson
Conduit PR
+44 20 7429 6666/+44 7429 6612
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