JOHANNESBURG (miningweekly.com) - Aim-listed diamond producer Kopane Diamond Developments plans to raise £3,3-million, after expenses, for working capital purposes related to its Liqhobong project, in Lesotho.

The funds would be raised through a placing of 25,7-million new ordinary shares with institutional and other investors at £0,14 a share.

The company noted that it had earlier determined that it would require about £2,4-million to fund the completion of a definitive feasibility study (DFS) and to finance the company until the end of next year, at which time the construction of the Main Pipe project was expected to start.

Substantial value had recently been added to the project's diamond resource, as the mining potential of the Main Pipe had been enhanced.

The Main Pipe's total resource had increased by 19,1% to 90,03-million tons, compared with the resource estimates provided in November last year.

A diamond resource of 29,7-million carats was contained in the Main Pipe to a depth of 510 m, with an estimated value of $2,54-billion, the diamond-miner stated.

It highlighted that these improved results meant that Kopane could demonstrate higher confidence in the recoverable resource, as the indicated resource of 38,6-million tons, alone, represented in excess of 11 years of production at over one-million carats a year.

However, with only £400 000 of cash resources, the cost of the remaining DFS work had been reviewed by Kopane, especially in light of the strong rand against the pound.

If the unfavourable exchange rates persisted until the end of 2010, the company would require about £3,2-million for working capital.

Kopane has subsequently decided to defer incurring expenditure on some elements of the DFS in favour of expenditure on other aspects that could have a more immediate revenue generation potential, such as a review of potentially resuming diamond production at the Liqhobong Satellite plant, which was placed on care-and-maintenance at the end of 2008.

The review would look at the feasibility of the operating the satellite plant with diesel-generated power ahead of connection to the electricity grid, which was expected in the first half of 2011.

Kopane would also review the most economical way of expanding production at the plant to 1,4-million carats a year.

It would also use trade-off studies to determine the timing and impact of further expansion of the satellite plant, as well as the possible gradual construction of the new Main Pipe plant and funding options for this.

PLACING DETAILS

Lanstead Capital, one of the institutional investors, would take up 22,5-million of these shares for an aggregate subscription of £3,15-million.

Kopane had also entered into an equity swap agreement with Lanstead, which would allow the company to retain some of the economic interest in the issued shares, it stated.

In terms of the agreement, Kopane's economic interest would be determined and payable in 24 monthly tranches, measured against a benchmark price of £0,19 a share. If the measured price exceeds the benchmark price, the company would receive more than 100% of the monthly payment.

If the price is below the benchmark price, the company would receive less than 100% of the monthly payment.

Kopane had incurred a cost of £350 000 to enter into the equity swap agreement, of which £35 000 had been paid in cash. The balance would be paid through the issuing of 2,25-million new ordinary shares to Lanstead.

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