Paragon Diamonds Limited / Index: AIM
/ Epic: PRG / Sector: Resources
15 September 2015
Paragon Diamonds
Limited (‘Paragon’ or the ‘Company’)
Positive
Technical Study for Mothae Kimberlite Project
Paragon Diamonds Limited, the AIM quoted diamond development
company, is pleased to announce the results of two independent
studies carried out by The MSA Group on the Mothae Kimberlite
Project (‘Mothae’), located in Lesotho, that Paragon is in the process of
acquiring.
The conclusions exceed management’s initial expectations, as
detailed in the announcement of 5 May
2015, that Mothae represents a low cost opportunity for
Paragon to generate significant value for shareholders through the
potential recovery of large high value diamonds. Mothae is
only 5 km from the world class Letšeng diamond mine in Lesotho which is located within a cluster of
kimberlites, including Paragon’s Lemphane Kimberlite Pipe Project
(‘Lemphane’).
These technical reports are intended as components of a future
Preliminary Economic Assessment (PEA) and Pre-feasibility Study
(PFS) and review multiple mining scenarios and simulated
progressive cutting of processing costs, which will now be explored
during final plant and open pit design work.
Highlights of the studies include:
- Potential to significantly increase Mothae’s NPV from
management’s original estimates.
- Improved strip ratio has been identified at <1:1 compared to
<1.5:1 previously assumed.
- Potential for average diamond values up to US$2,000/ct..
- Several Mining Scenarios exceeding 20Mt at US$40+/t ore value
in a low operating cost mine exceeding 2Mt and 40,000 carats per
year.
These studies focussed on determining both the trade-off between
maximum diamond value recovery against processing costs (using a
range of bottom cut-off screen sizes-BCOS), as well as
optimum opencast mining scenarios at the Mothae Kimberlite based on
the mining of the Main Pipe only, which comprises the South-West
(SW), South-East (SE) and South-Central (SC) domains of the
kimberlite. The basis for both studies was the NI 43-101
Technical Report completed by Lucara Diamond Corporation in
February 2013.
Mothae Revised Diamond Revenue
Models
The revenue scenarios compiled by The MSA Group come from a
sample of 23,738 cts that were used to model the average
diamond value per size class for each of the four kimberlite
domains. Average diamond values were calculated for three
bottom cut-off screens (+2 mm; +3 mm; +4 mm) using
three revenue models. Key findings are summarised below:
- The resource of Main Pipe (Southern Lobe) comprising SW+SC+SE
Domains is estimated at 32.41 million tonnes at an average
diamond value of US$1,352/ct
and a grade of 2.2 cpht at a 3 mm bottom cut-off screen
(BCOS). The +20 ct diamond values were capped at
US$6,492/ct for study purposes.
- Upside potential of the planned mining area, SW+SC+SE Domains
at US$1,971 per carat and a grade of
2.2 cpht at 3 mm BCOS with +20 ct diamond value
capped at US$11,057/ct, has been
estimated.
- A worst-case “Downside” model, which is based on modelled
revenue of US$1,024/ct at 3 mm
BCOS for SW+SC+SE, still yields US$22.53/t ore value, i.e. above anticipated
break-even. The “Downside” model at 3 mm BCOS also
assumes overall diamond values circa 20% lower than those achieved
in the actual 2012/13 valuation and sale of diamonds recovered
during trial mining.
- Modelled ore values at 3 mm BCOS of between US$29.75 and US$43.36/t would increase to
US$32.77/t and US$48.07/t respectively by excluding the
6.8 Mt SE Domain.
Summary of Indicated/Inferred Resource Tonnes and Average Grades
& Values
Bottom Cut-off |
Domain |
Ind & Inf. |
Cumulative |
|
|
Mt |
cpht |
Mt |
cpht |
US$/ct High |
US$/ct Med. |
US$/ct Low |
@ +2mm |
SW |
21.18 |
2.5 |
21.18 |
2.5 |
$1,887 |
$1,185 |
$895 |
|
+SE |
4.44 |
4.4 |
25.62 |
2.8 |
$1,777 |
$1,142 |
$864 |
|
+SC |
6.79 |
2.6 |
32.41 |
2.8 |
$1,640 |
$1,069 |
$812 |
|
+N |
6.55 |
2.4 |
38.96 |
2.7 |
$1,638 |
$1,076 |
$817 |
|
Total |
38.96 |
2.7 |
|
|
|
|
|
@ +3mm |
SW |
21.18 |
2.0 |
21.18 |
2.0 |
$2,162 |
$1,469 |
$1,106 |
|
+SE |
4.44 |
3.5 |
25.62 |
2.3 |
$2,090 |
$1,425 |
$1,075 |
|
+SC |
6.79 |
1.9 |
32.41 |
2.2 |
$1,971 |
$1,352 |
$1,024 |
|
+N |
6.55 |
1.9 |
38.96 |
2.1 |
$1,991 |
$1,359 |
$1,028 |
|
Total |
38.96 |
2.1 |
|
|
|
|
|
@ +4mm |
SW |
21.18 |
1.4 |
21.18 |
1.4 |
$3,016 |
$2,033 |
$1,519 |
|
+SE |
4.44 |
2.3 |
25.62 |
1.6 |
$2,946 |
$1,991 |
$1,490 |
|
+SC |
6.79 |
1.2 |
32.41 |
1.5 |
$2,833 |
$1,924 |
$1,443 |
|
+N |
6.55 |
1.3 |
38.96 |
1.5 |
$2,850 |
$1,932 |
$1,450 |
|
Totals |
38.96 |
1.5 |
|
|
|
|
|
Source: The MSA Group J3105 report
Mothae Opencast Mining Scenario
Conclusions
A sequence of eleven Whittle pit optimization scenarios were
undertaken by The MSA Group, using 2 mm, 3 mm &
4 mm BCOS?with plant operating costs reduced by -5% to -20% in
some scenarios (to reflect the coarser BCOS) and to include various
elements of the geological domains. Highlights are:
- Optimum scenarios for mining the combined SW+SC+SE domains at a
waste:ore ratio of 1:1 and either 3 mm or 4 mm BCOS yield
a 12 year initial open pit life.
- A typical scenario (SW+SC+SE @ 3 mm BCOS and -5% on
processing costs) yields a provisional discounted pit value based
on industry standard assumptions for Lesotho mining costs of US$ 190M at 10%
discount on a resource of 22.6 Mt producing ~42,000 carats per
annum over a 12 year open pit life. Capital expenditure,
financing, taxation etc. were not included in the analysis.
- The possibility to increase pit depth to in excess of
300 m at a waste:ore ratio of under 1.5:1 and to incorporate
additional kimberlite domains into the mine plan subject to ongoing
resource development work.
- Note, the potential differences in processing related to
different amounts of plant throughput due to increased bottom
cut-off screen sizes were simulated by progressively cutting
processing costs. This expediency is broadly indicative of
the expected cost-savings (both capital and operating) that would
be associated with the different plant configurations.
Paragon will conduct a PEA or a PFS to more accurately
quantify the potential cost savings associated with larger bottom
screen cut-off sizes and to determine overall longer-term project
viability.
Dr Stephen
Grimmer, Managing Director, said:
“The reports compiled by The MSA Group confirm and exceed
Paragon Diamonds’ initial internal projections of the resource
being acquired at Mothae. It is clear that the combined SW+SC
domains in particular represent a higher-value, relatively
higher-grade resource, exceeding 25 Mt in total, with the
potential for a significant percentage of carats present in large
diamonds. At 3 mm the grade is 2.3 cpht and
US$1,425/ct (“Best Estimate”) with
potential upside for US$2,090/ct (the
“Upside”).
“It is important to note that in the “Best Estimate” case, the
report caps all diamonds above 20 cts at US$6,492/ct value – even in the “Upside Scenario”
all diamonds above 20 cts are still capped at US$11,057/ct. Large Lesotho diamonds range
up to US$70,000/ct and Mothae itself
has historically achieved US$50,000+/ct for a large diamond in
December 2011. At a 4 mm
BCOS the entire ~5 Ha and 32 Mt Southern Lobe (SW+SC+SE)
has a grade of 1.5 cpht and a “Best Estimate” of US$1,924/ct (~US$2,800/ct with “Upside”). This is
comparable in potential grade and average diamond value to the
~4 Ha Letšeng Satellite pipe, only 5 km distant, and the
mainstay of production at that mine.
“The favorable ~1:1 waste:ore ratio (compared to initial
in-house estimates as high as 1.5:1) should result in operating
cost savings of up to US$1-2/t based
on industry-standard mining contractor costs of ZAR25-30/t plus fuel and as provided in the MSA
Report. Further cost reductions could result from using
extensive X-ray transmission recovery (XRT) technology to reduce
water and power consumption and waste generation and at the same
time more reliable recovery of large diamonds with reduced
breakage.”
Funding Update
The Company is in advanced negotiations with several funding
providers as it looks to complete the acquisition of a 75% interest
in, and operatorship of, Mothae from Lucara Diamond Corporation
(‘Lucara’), a TSX quoted mining company (the ‘Acquisition”).
Subsequent to the conclusion of these negotiations, the Board will
select and announce what it deems to be the best funding package
available. The proposed funding package from International
Triangle General Trading LLC (‘ITGT’) for the Company’s existing
Lemphane Project, as set out in the announcements dated
28 January 2015 and 5 May 2015
respectively, also remains subject to final negotiation and
contract. As such, the Board may agree a funding package for
both Mothae, and the Lemphane project with a party other than ITGT
and on terms that differ from those which have previously been
announced, but which may prove to be more commercially attractive
to shareholders overall.
The Board remains confident that the selected funding package
for both Mothae and Lemphane will be agreed in order to meet the
terms of the Acquisition or any revisions thereto.
Mr. Simon
Retter, Finance Director said:
“Subsequent to the new and positive confirmations provided by
The MSA Group reports on Mothae, the Board has been intensively and
positively refining the Company’s funding options with potential
financing partners from an enhanced commercial position.
Several funding options are in advanced stage negotiations,
with due diligence now complete, and as previously announced it is
possible that the Company may seek ITGT to fund the downstream
diamond operations in Dubai, with
an alternative funder providing capital to initiate and accelerate
mining at both Mothae and Lemphane. We look forward to
updating shareholders further later this month.”
**ENDS**
For further information please visit www.paragondiamonds.com or
contact:
Philip Falzon Sant Manduca |
Paragon Diamonds
Limited |
+44 (0) 20 7182 1920 |
Simon Retter |
Paragon Diamonds
Limited |
+44 (0) 20 7182
1920 |
David Hignell
Gerry Beaney |
Northland Capital Partners
Limited
(Nominated Adviser) |
+44 (0) 20 7382
1100 |
John Howes
Mark Treharne |
Northland Capital Partners
Limited
(Sales and broking) |
+44 (0) 20 7382 1100 |
Felicity Winkles |
St
Brides Partners Limited |
+44 (0) 20 7236 1177 |
Frank Buhagiar |
St
Brides Partners Limited |
+44 (0) 20 7236 1177 |
Notes
Paragon Diamonds has an 80% interest in the Lemphane Kimberlite
Pipe project in Lesotho, located
close to the world class Letšeng mine, Lesotho’s largest diamond
mine. Lemphane is the last known kimberlite to be developed
in Lesotho. The first of a two stage production programme is
expected to commence in 2015 which will further define the resource
at Lemphane. As increased tonnages of kimberlite are processed the
proportion of larger diamonds recovered will improve, increasing
the average value of diamonds recovered at the project, as was the
case at Letšeng. In addition to Lemphane, Paragon Diamonds has
signed a Memorandum of Understanding with Lucara Diamond
Corporation, a TSX quoted mining company, to acquire a 75% interest
in and operate the defined Mothae Kimberlite Resource, which is
located only 5 km from the world class Let?eng le Terai diamond
mine in Lesotho.
In accordance with the AIM Rules for Companies, the information
in this announcement has been reviewed by Dr Stephen Grimmer PhD.,
Msc., a qualified geologist with over 25 years diamond exploration
experience.