3rd Jul 2008 07:30
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 - JULY 2008
DiamondCorp plc, the South African diamond mining company, is pleased to provide the following update on its activities for the six months ending 30 June 2008.
Commenting on the period, DiamondCorp CEO Paul Loudon said: "DiamondCorp's operations have progressed significantly over the past six months. First pass recoveries from the tailings re-treatment operation are now in line with original estimates and issues with power supply and the re-crush circuit have been addressed. "At the same time, the development of the Lace underground project is now 14 months ahead of the original schedule, with initial kimberlite recovery from the Lace Satellite pipe expected by September 2008."
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 re-treatment activities which are being undertaken while access to the underground is established.
Since the start of 2008, management has focused on accelerating development of Phase Two underground mining at the Lace mine. Phase Two involves capital expenditure of approximately R100 million (US$12.8 million) over two years to achieve underground production of 4,000 tonnes of kimberlite per day. Current year expenditure will be funded from the recent R26 million (US$3.3 million) equity placement to South African institutions. The balance of funding is expected to be debt, as the Company is currently ungeared.
This year's expenditure will fund extraction of the initial bulk sample and achieve trial mining at a rate of 1,000 tonnes per day from the underground operations.
Approximately 35 million tonnes of kimberlite have been outlined in the main Lace pipe between the 240m and the 855m level. 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 is now being sunk between the Lace pipes and the existing 6m x 2.7m vertical shaft using the Company's own underground mining fleet. This decline is advancing at the rate of 120m per month and will access the Satellite pipe within the next three months. A 20,000 tonne bulk sample will be extracted from the Satellite pipe while the decline continues down to access the main pipe during the first quarter of 2009.
The accelerated development of Phase Two means kimberlite will now be accessed 14 months ahead of the original schedule.
Re-treatment of Lace tailings continued during the past six months, with 447,774 tonnes treated for the recovery of 27,103 carats of diamonds, of which approximately 70% were gem quality. Total recovery over the period averaged 6.1 carats per hundred tonnes (cpht) and were lower than anticipated due to continued failures in the re-crush circuit. Re-crush is estimated to recover another 3 cpht from the tailings when a new re-crush crusher is installed within the next three months.
During June a 34.84 carat non-gem diamond was recovered, the largest diamond yet recovered from the tailings. While this diamond was not of significant value, it underlines both the potential for sizeable stones in the Lace kimberlites and the efficiency of the Lace recovery systems.
In addition to high quality white diamonds, the Company continued to recover significant numbers of fancy yellow, pink and lilac stones from the dumps. The quality of the diamonds in the tailings and the presence of large stones underpins management's decision to accelerate Phase Two underground development.
Four diamond tenders were held in Johannesburg during the six months, with 19,214 carats of gem diamonds being sold in the period for total revenue of US$1.163 million (US$61 per carat average). Non-gem diamonds are held in inventory and sold once a year.
Operations for the period continued to be hampered by power outages and repeated breakdowns in the re-crush circuit, though the impact was not as severe as in the previous period. Operating costs have been impacted by rising diesel prices and unplanned repairs and maintenance resulting from power spikes. Management has moved to address the power and re-crush issues, and accelerating Phase Two will deliver higher margin kimberlite to the processing plant.
With respect to power, a 9km power line has been built to access the new Eskom power line supplying De Beers Voorspoed diamond mine. This second power source, which will be switched on next week, comes from Bothaville in the western Free State, and services only the Voorspoed and Lace mines.
It is expected that this supply will be cleaner and subject to less load shedding and power outages than Lace's original power source from Heunigspruit in the eastern Free State. Both power sources will be active, providing Lace with flexibility during load shedding.
With respect to the re-crush circuit, management has concluded that the cone crusher specified by the plant process designers is not able to achieve the desired crushing size on a continuous production basis. As a result, it has been decided to move the cone crusher from its current re-crush position and recommission it as the secondary crusher for primary kimberlite.
A new re-crush crusher is anticipated to be installed in the next three months following detailed testwork.
In the meantime, approximately 200,000 tonnes of treated tailings material is stockpiled awaiting re-crush to liberate diamonds locked up in 6mm to 28mm kimberlite particles. This stockpile grows each day as approximately 35 per cent of run of mine tailings reports to re-crush. The Company estimates that up to 30 per cent of the diamonds and 40 per cent of the revenue in the tailings is contained in re-crush diamonds, so the failure of this circuit has had a significantly negative impact on revenues. The Company is currently investigating legal action against the plant process designers to recover this loss.
Operations - Other
During the past six months, the Company assessed a number of other diamond production opportunities but none of these achieved the Company's hurdle rates for project scale or profitability. No activities were undertaken on the Company's exploration properties during the quarter.
Discussions took place during the period with both the Department of Mines and Energy towards finalisation of the Lace mining right for the Phase Two underground operation, and with the State Diamond Trader with respect to reaching a suitable agreement for the mechanism by which the SDT has the statutory right to purchase up to 10 per cent of the Lace Mine production. The Company anticipates being granted the underground mining right for Lace before the end of the year and that an agreement with the SDT will be finalised shortly.
On behalf of the board
Euan Worthington
Chairman
3 July 2008London
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
Jane Stacey/Jos Simson
Conduit PR
+44 20 7429 6606/+44 7922 923 306
Related Shares:
DCP.L