5th May 2015 08:28
LONDON (Alliance News) - Paragon Diamonds Ltd Tuesday said it has signed a memorandum of understanding to acquire a 75% interest in the Mothae kimberlite resource near the company's existing Lemphane project in Lesotho, and said it has pushed back initial production into the third quarter to develop both projects simultaneously.
The memorandum has been signed with Lucara Diamond Corp, an Australian Securities Exchange listed mining company, and Paragon will pay a total cash consideration of USD8.5 million. Paragon will operate the Mothae resource, which lies near the Lemphane project and the "world class" Letseng le Terai diamond mine, it said.
"Mothae represents a low cost opportunity for Paragon to generate significant value for shareholders through the recovery of additional large high-value diamonds in tandem with the commencement of stage one production at Paragon's nearby Lemphane kimberlite pipe project," said the company.
Paragon said it will now construct both Mothae and Lemphane simultaneously to lower costs and benefit from economies of scale whilst delaying the time-scale for commencement of production of the enlarged project until the third quarter of 2015 from its original target of starting production at Lemphane in the second quarter.
In March, Executive Chairman Philip Manduca told Alliance News he was "confident" of acquiring an asset near the Lemphane project which would at least "double" the company's expected production level from Lemphane of 2,500 carats a quarter or possibly even treble it.
On Tuesday, Paragon said Mothae adds an indicated and inferred resource of 39 million tonnes at 2.7 carats per hundred tonnes at USD1,060 per carat to Lemphane's 48 million tonne resource. Paragon said it has already recovered 14 diamonds from Mothae varying between 10.6 carats and 56.5 carats with an average value of USD5,482 to USD41,869 per carat.
In total, Paragon has recovered 21,700 carats from 600,000 tonnes of ore at sampled grades between 2.1 and 5.1 carats per hundred tonnes.
Paragon said the acquisition "transforms Paragon into a leading diamond development company", adding that revenue from Lemphane and Mothae should total around USD36 million in the first year of full production based on current resource estimates.
On top of the USD8.5 million cash consideration to acquire Mothae, the company is expecting to pay a further USD5 million in development capital and USD3 million in operating expenditure to bring Mothae into production.
Paragon said it would finance this by a loan note from International Triangle General Trading LLC. The terms are "similar to the funding for Lemphane" and is in addition to the planned USD12 million debt and equity package from International Triangle for the Lemphane project.
"This is a tremendous opportunity, a major coup for Paragon, one which we had to prioritise the acquisition of, once Lucara announced their intention to dispose of the asset at the end of last year, and wholly justifies, in my opinion, minimally re-scheduling our intended production timetable by a matter of a few weeks for Lemphane from the second to the third quarter of 2015 to benefit from joint production savings and production efficiencies from both assets," said Manduca on Tuesday.
Paragon shares were up 11% to 5.79 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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