PARAGON DIAMONDS LTD
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$48.07/t respectively by excluding the 6.8 Mt
SE Domain.
Summary of Indicated/Inferred Resource Tonnes and Average Grades & Values
Bottom Domain Ind & Inf. Cumulative
Cut-off
Mt cpht Mt cpht US$/ct US$/ct US$/ct
High Med. 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 Paragon Diamonds +44 (0) 20 7182 1920
Manduca Limited
Simon Retter Paragon Diamonds +44 (0) 20 7182 1920
Limited
David Hignell Northland Capital Partners +44 (0) 20 7382 1100
Gerry Beaney Limited
(Nominated Adviser)
John Howes Northland Capital Partners +44 (0) 20 7382 1100
Mark Treharne Limited
(Sales and broking)
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.
PARAGON DIAMONDS : Positive Technical Study for Mothae Kimberlite Project
September 15, 2015 at 04:01 pm IST
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© PRNewswire - 2015
