(DCP) Diamondcorp

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