Aim-listed diamond development company Paragon Diamonds last month said that the results of two independent studies carried out by mining consultancy The MSA Group on the Mothae kimberlite project, in Lesotho, which Paragon is in the process of acquiring, exceeded management’s expectations.

MD Stephen Grimmer said the studies’ conclusions “confirm and exceed [the company’s] initial internal projections of the resource being acquired at Mothae”, adding that the favourable 1:1 waste: ore ratio, compared with the initial 1.5:1 ratio, should result in an operational cost saving of between $1/t and $2/t.

He believes that further savings could result from using X-ray transmission recovery (XRT) technology to reduce water and power consumption as well as waste generation, while also providing a more reliable recovery method.

The independent studies focused on determining the trade-off between maximum diamond value recovery against processing costs, using a range of bottom cutoff screen sizes (BCOS), as well as the optimum opencast mining scenarios for the mining of the Mothae main pipe, which comprises the south-west (SW), south-east (SE) and south-central (SC) domains.

The revenue scenarios compiled by The MSA Group come from a sample of 23 738 ct that were used to model the average diamond value-per-size class for each of the kimberlite domains.

The resource of the SW, SC and SE domains is estimated at 32.41-million tonnes at an average diamond value of $1 352/ct and a grade of 2.2 ct per hundred tons at a 3 mm BCOS.

Grimmer said that the SC and SW domains represent a higher- value, relatively higher-grade resource, which exceeds 25-million tonnes (combined), and has the potential to produce a significant amount of large diamonds.

A worst-case model, based on modelled revenue of $1 024/ct at 3 mm BCOS for the three domains, still yields $22.53/t ore value, which is above the expected breakeven.

This ‘downside’ model, at 3 mm BCOS, also assumes overall diamond values around 20% lower than those achieved in the actual 2012/13 valuations and sale of diamonds recovered during trial mining.

Funding
Meanwhile, Paragon FD Simon Retter said in the announcement of the study results: “Subsequent to the new and positive confirmations . . . the board has been refining the company’s funding options with potential financing partners from an enhanced commercial position.”

He noted that the company was in advanced negotiations with several funding providers as it looked to complete the acquisition of a 75% interest in, and operatorship of, Mothae from diamond miner Lucara Diamond Corporation.

Further, he stated that, at the conclusion of these negotiations, the board would select and announce what it deemed to be the best funding package available.

The proposed funding package from International Triangle General Trading (ITGT) for Paragon’s existing Lemphane project, also remained subject to final negotiation and contract.

As such, the board might agree a funding package for both Mothae and the Lemphane project with a party other than ITGT and on terms that differed from those which had previously been announced, but which might prove to be more commercially attractive to shareholders overall.

Mothae Acquisition
In May 2015, Paragon signed a memorandum of understanding with Lucara to acquire a 75% equity stake in the Mothae mine, which is located within a cluster of kimberlites, including Paragon’s Lemphane kimberlite pipe project.

In the September 30 release of the company’s interim results (for the six-month period ending June 30), executive chairperson Philip Falzon Sant Manduca stated: “[Paragon] has approval from the government of Lesotho . . . and is waiting to finalise the acquisition with Lucara, which has granted an extension of seven days on the original September 30 deadline to enable the conclusion of the transaction”.