Diamond juniors push ahead with Botswana projects

Brendan Ryan | Thu, 01 Jul 2010 12:34
[miningmx.com] -- BOTH African Diamonds and Firestone Diamonds are pushing ahead with projects in Botswana, according to company statements released to coincide with the Botswana Resource Sector conference held this week in Gaborone.

AIM-listed African Diamonds holds 40% of the AK6 project near De Beers Orapa mine, with the other 60% being owned by TSX-listed Lucara.

The partners have published an updated feasibility study which nearly doubles the construction cost of the first phase of the mine to $120m from the initial estimate of $63m, announced by African Diamonds MD James Campbell last year.

The revised mining plan calls for a higher volume of ore production from the mine, but at a markedly lower grade.

According to the African Diamonds statement, the revised capital cost number “is a significant increase, with the major variances being a 25% increase in throughput (accounting for 26% or $14m), foreign exchange movement and escalation ($20m or 37% of the increase), and scope changes ($20m or 37% of the increase).

“The most noteworthy scope changes were the addition of a pebble crushing circuit and increases in indirects and housing.”

The study has also bumped up the estimated operating costs to $17.2 per tonne of ore treated, because of higher electricity supply costs and foreign exchange movements.

The initial plan was to process 2 million tonnes per year of ore to recover 400,000 carats of diamonds. Campbell had expected the average grade to be about 25 carats per hundred tonnes (cpht) instead of the 22cpht forecast by De Beers, which previously owned the project.

Instead, the average grade has been dropped to 16cpht but at a higher average value of $243/carat compared with the original De Beers estimate of $150/carat.

Commissioning of the AK6 mine is due to start in the fourth quarter of 2011.

The African Diamonds share price has dropped steadily from 55p last November - when the partnership deal with Lucara was struck – to about 29p at present.

According to analyst Joe Lunn at UK institution FinnCap, “African Diamonds continues to discuss funding its equity component for the Boteti project finance with a loan from diamantaires.

“We understand that in return for the potential loan, which we think would be for between ₤6m and ₤8m, African Diamonds will agree to sell its share of future rough diamond production at a price to be determined.

“The higher costs have impact our net present value of African Diamonds and we adjust our 12-month valuation to 59p per share.

“But we continue to believe that an exit from a sale is the most likely outcome for shareholders.”

AIM-listed Firestone Diamonds announced it is going ahead with the construction of the tailings treatment plant at De Beers Jwaneng mine, following approval by De Beers Botswana (Debswana).

Firestone will be responsible for the financing, construction and operation of the plant. Construction is to start in the first half of 2011, with full production of 2mt/year targeted for 2102.

The estimated capital cost of the project is $55m, which Firestone intends raising through a special purpose vehicle that will arrange debt finance against the contract with Debswana.

According to Firestone CEO Philip Kenny, the Jwaneng tailings project has the potential to contribute up to $150m in toll treatment revenues for Firestone.

Kenny also announced that Phase One of the BK 11 kimberlite project has been completed and is ready to start production once the mining licence is issued.

He said: “The imminent expected commencement of production at BK11 is a major milestone for the company, as it will make Firestone one of only three kimberlite producers worldwide outside the major mining companies.”

Firestone shares have also underperformed this year, dropping from around 50p in January to the current level of 32p.