A new economic study for Tango Mining’s diamond project predicts robust returns. Tango’s PEA (preliminary economic assessment) shows the BK11 pipe to have a net present value of US$40mln at an eight percent discount rate and excluding the overall US$8.8mln acquisition costs.
With production likely to run at an average of 90,000 carats of diamonds per year in the early years of a planned seven year life, the internal rate of return works out at 43%, including acquisition costs. With those numbers in the bag, Tango can now turn towards the serious business of raising the capital necessary to complete the deal, specifically US$7.65mln still outstanding which has to be paid by April 8th, 2016.
Tango must also get pertinent approvals from the Botswana government and the Toronto stock exchange. Diamond valuation experts have placed a conservative value on the stones likely to come from BK11 at around US$260 per carat, with an upside case that reaches up to US$285.
In all, Tango expects at this stage that BK11 will generate revenues of around US$188mln, with each tonne of rock costing US$10.80 to mine and generating revenue of over US$20.00. So the margins are clearly there, helped along by the high quality of the local infrastructure and the general, and widely accepted attractiveness of Botswana as a mining jurisdiction.
What’s more, the operations at BK11 come with US$45mln in tax losses, so in the early years the company will be able to retain a greater share of profits. Tango also has the essential expertise in place to bring BK11 into production, and given that the project is what is known in the jargon as a “brownfields” site, environmental and other permitting shouldn’t be too onerous a process.