Paragon Diamonds Limited, the AIM quoted diamond development and production company, says its 85% owned Lesotho subsidiary Meso Diamonds has now finalised the terms and conditions of the Mining Lease Agreement with the Government of Lesotho for the mining of the Lemphane Kimberlite Pipe in Lesotho. This will allow the company to initiate preparations for, and commence, Stage 1 production at Lemphane.
According to the company, the mining Lease has been granted for initial ten years, renewable for three consecutive ten year periods subject to the terms of the Mines and Minerals Act of 2005. The stage 1 of a two-stage production programme at Lemphane targeting the mining of 500,000 tonnes per annum to recover an anticipated circa 10,000 carats per year at a minimum average value of US$750/ct and stage 1 production intended to produce a Maiden Inferred Resource at Lemphane and definitive feasibility study (‘DFS’) for Stage 2 mining.
Paragon Diamonds added that the mining Lease Agreement for Lemphane (009/2013) is held by Meso Diamonds which is currently 85% owned by the Company and 15% owned by local Basotho shareholders. Under the terms of the Mining Lease Agreement, the Government of Lesotho will now hold an interest of 20% in the Project, and 10% of the Project interest held by the Government will be free carried with the other 10% to be funded by the Government through its share of Project dividends.
Under the Mining Lease Agreement there are provisions to maintain a 15% local Basotho shareholding in the Project. An initial royalty of 4% will be payable to the Government on production and is subject to review within five years. The Mining Lease Agreement has an initial term of ten years and is renewable in accordance with the Mines & Minerals Act of 2005 for a further three consecutive ten year periods.
Chairman of Paragon Diamonds, Martin Doyle said: “We are delighted that the terms of the Mining Lease for Lemphane have now been finalised. Having previously recovered stones of up to 8.9 carats with values in excess of US$2,400/ct, we have already demonstrated Lemphane’s potential to yield large high-value diamonds. We are now advancing our planning for Stage 1 production. As well as generating significant revenues, Stage 1 production is expected to increase the average value per carat (a consequence of the higher amount of tonnage mined), build on the robust economics already identified and also provide a bankable Mineral Resource. I look forward to providing further updates to shareholders as we look to establish Lemphane as another world class diamond mine in Lesotho.”
Operational Update
The Project is a six hectare kimberlite pipe located in a prolific diamond producing region of Lesotho. A 3D geological model for Lemphane was completed in late 2013 based on the interpretation of 1,373 metres of drilling on four drill holes, and resulted in an 80% increase in the overall estimated kimberlite tonnage at Lemphane to 48.6Mt to a depth of 350m. This increased tonnage is very positive for the project as it has the potential to extend the life of mine by approximately eight years with minimal additional capital expenditure.
A bulk sampling programme carried out by the Company in 2013 established surface grades and resulted in the recovery of large high value diamonds of up to 8.9 carats and US$2,400/ct respectively. In their recent audit report, the MSA Group, the Company’s bulk sampling consultants, suggest that due to the likelihood that bulk sampling at depth will be unfeasible, it is expected that an Inferred Mineral Resource classification will be the maximum that can be achieved at Lemphane. An Inferred Mineral Resource estimate (grade and value at depth) can be established by extrapolating ‘statistically robust surface production or trial mining results’ as was successfully applied at the Letšeng Mine (Gem Diamonds plc.) and at the Mothae Project (Lucara Diamond Corp.), both of which are located close to Lemphane.
As well as generating anticipated revenues in excess of US$8m per annum, the Company’s Stage 1 production programme at Lemphane, which is due to commence in 2014, will be of sufficient size to lead to a Mineral Resource at the Inferred level. Stage 1 production will cover a two year period during which time it is intended that 1Mt of kimberlite will be mined and processed for the expected recovery of at least a total of 20,000 carats at an estimated minimum value of US$750 per carat at a provisional 2 mm production cut-off. Based on preliminary size frequency distributions, comparable to the Mothae Kimberlite, the recovery of up to 2,000 carats of “special” stones (i.e. 9.8+ carats) is anticipated, including diamonds of up to 100 carats in size. The Company remains confident of achieving US$1,500 per carat for Stage 2 production with the expected recovery of significantly larger stones as a direct result of the increase in tonnage processed.
The Company now expects to conclude advanced stage negotiations on the financing of Stage 1. This financing is intended to cover the entire development costs of Stage 1 as well as providing initial working capital.
In accordance with the AIM Rules for Companies, the information in this announcement has been reviewed by Stephen Grimmer PhD., MSc., a qualified geologist with over 25 years diamond exploration experience.
