DiamonEx, the Australian junior miner, is set to commission its mine by the end of the year in a bid to feel up the gap in the diamond supply market.
Head of the planned Lerala mine, Mark Cotzee told The Sunday Standard on Wednesday that mine construction is going to plan and they would be having their first production by the end of the year.
?We started the civil construction in January. What will follow is the steel construction and then mechanical construction,? he said.
The construction moves follow the announcement of A $ 20 million funding revealed at the close of last year.
Dan O?Neill, Managing Director of DiamonEx, has hailed the funding from the financial boutique, Babcock & Brown saying that it provides a principal funding for the Lerala project.
?We are delighted that Babcock & Brown has decided to provide the principal funding for DiamondEx?s founding project at Lerala.
?Babcock & Brown is a highly respected global investment firm that has been instrumental in the development of many projects around the world,? he said.
Under the agreement, Babcock & Brown will invest A$ 2.5 million in a placement of DiamondEx shares at 24 cent per share, and subject to due diligence, other conditions precedent and DiamondEx shareholders approval, up to A$ 13 million in four year convertible loan facility currently being fanalised.
?The funding package will enable DiamondEx to fully finance the development of Lerala mine while limiting up dilution to existing shareholders. Completion of the funding package will enable commercial production of diamonds to commence at Lerala in late 2007,? O? Neill said.
Lerala mine lays about 120 kilometres from Palapye ? a place earmarked for the development of the country?s second university ? and it is expected to create close to 300 new jobs directly.
At full production, the mine is to produce 330,000 carats per annum over its life span of 10 years. Its production is expected to be sold through the DTC Botswana which will come operational by 2008.
?The company decided to suspend its trading at the beginning of the week because it was about to announce sensitive information. That was expected,? Leutlwetse Tumelo, an analyst at the sponsoring broker Capital Securities. ?The mine is going to be highly profitable because the production cost is low. And the most interesting thing about the project is K2 which is the richest resource.?
The mine is forecast to have a net operating cash flow of US $100 million on revenue of US $ 230 million over a period of 10 years.
The mine will be an open cut operation and there is a provision for underground mining after 10 years.
?We are busy working on plans to extend the life-span of the mine to beyond 10 years. As part of the plan we are doing magnetic flights to determine the kimberlite resource and we are taking soil samples to South Africa and Australia for testing,? Cotzee said.
The company has several exploration licenses in Tuli-block and some for areas around Jwaneng?which they have not yet acted upon.
?We are looking at mining five pipes around Lerala in order to extend the life-span of the mine,? he added.
The pipes that have been earmarked for mining are K2, K3 ? which are the biggest ? K4, K5 and K6.
The Lerala mine was formerly mined by De Beers but De Beers left because the deposits there were of a smaller scale. Further, De Beers by then used old and second hand equipment which made it unviable.
The Lerala deposit has about 25-to-30 percent gem-stone diamonds while the rest is industrial diamond.
The biggest stone ever discovered there was 17 carats but DiamondEx exploration has only gone as far as three carats. According to DiamonEx valuation, each stone will average US $ 55 per carat.
DiamondEx is also planning to go back to the tails which were left by De Beers with the use of modern technology to salvage whatever diamonds could have been left behind.
?We have gone 110 meters below the surface with our drilling and what we believe is that we will able to do an open pit mining up to that level.
Thereafter, we will have to do a shaft,? Cotzee said.
The mine will be boosted by the envisaged diamond shortage in the market and the price spikes that are being driven by China and the Indian markets. The supply shortage has impacted on De Beers? results for last year as they tumbled 6 percent against the previous year.
In the next 10 years diamond prices are expected to rise by 50 percent.