DiamondCorp’s primary asset in South Africa is the historic Lace Diamond Mine. Located near Kroonstad, 200km south-west of Johannesburg the Lace Diamond Mine received a mining licence in 2009 and since that time significant progress has been made in returning the mine to its former productive glories. The Lace mine has a large resource at 36 million tonnes and the mineral resource statement shows a total of nearly 10 million carats at a price of US$164 per carat. On top of that when DiamondCorp applied for ownership of the mine in 2005, there were 4.5 million tonnes of tailings from the previous operations.
DiamondCorp (AIM:DCP)(JSE ALT-X:DMC) announced in December the Lace mine will move into full scale production from the first mining block in 2016, building from an average 4,000 tonnes a month in Q1 to 30,000 tonnes from July onwards. To date, a total of 7,449 carats of diamonds have been accumulated from bulk testing and initial production including three stones larger than 10 carats, the largest weighing 22.11.
DiamondCorp CEO Paul Loudon said, “Very quickly within the production ramp up we are starting to see some of the nice stones that we feel Lace is going produce.”
For DiamondCorp to win the application for the Lace mine it had to show commitment to the Mining Charter regarding Black Economic Empowerment (BEE). DiamondCorp has sold stakes in Lace of 13 per cent each to ‘historically disadvantaged South African’ firms Pembani Group and Sphere Holdings to meet the Charter’s long-term equity requirements.
Loudon says that after the company received the mining right in 2009 they set about straight away processing the existing tailings and installed a 200 tonne per hour dense media separation plant. While the tailings were treated DiamondCorp completed vital exploration and feasibility studies on reopening the underground mine and creating a high-margin production asset. By March 2012 they had taken the decline tunnels down to the 216m level and extracted a 15,000 tonne bulk test.
“That was able to show us confirmed grade and carat value and give us sufficient encouragement to go out and raise the capital required to build the underground mine,” said Loudon.
It was a difficult time for raising finance for such a project in South Africa. The industry was taken aback by the Marikana incident where 44 striking miners were killed by police and investor confidence in South African mines was at an all-time low.
“Raising the capital was a difficult process, it took us a whole year to put the financial package together, mainly because we were close to getting it all together when Marikana happened,” reflected Loudon.
It wasn’t until the Industrial Development Corporation of South Africa (IDC) stepped in with R220 million (US$13 million) that the project could progress. DiamondCorp were able to couple that project finance facility with $6 million debt from Tiffany in New York, in return for an offtake agreement, and reach the required capital to put the first mining block into place.
In exchange for Tiffany agreeing to that loan they get the right to an offtake agreement for the life of the mine to buy any diamonds from the mine that meet their exact quality criteria, at commercial prices.
“It works for us because Tiffany put up a plain vanilla project finance facility which will be paid off in due time,” said Loudon. “It’s more about them securing supply for the long term.”
Excluded from the Tiffany agreement are ‘special stones’ discovered at Lace. DiamondCorp can tender any diamonds larger than 10.8 carats in size or worth more than $5000 per carat.
“We produce some type 2A super-white diamonds and they don’t have to be very big to be worth more than $5000 per carat, they will be sold however we feel best at the time.”
During 2015 DiamondCorp commenced production at the first mining block, the ‘Upper K4 block’ reaching 4,000 tonnes a month and increasing to full-scale at 30,000 tonnes a month by July 2016. This was announced in a company statement in December.
DiamondCorp can mine the Upper K4 block for a maximum of 5 years if needed, meanwhile Loudon is planning to continue development down and install conveyor belts down to the 500 metre level. The upper K4 block will be conventional, long-haul scoping, blasting material.
The next block cave is mass caving and once it is complete there will be no blasting of the material – this will bring the mine up to the capacity of 1.2 million tonnes p/a or 100,000 tonnes per month.
The big development for DiamondCorp in 2015 came as they commissioned conveyor belts to haul all material in the mine to the surface. This step had threefold benefits: the speed of recovering material has increased, the costs of operating the mine have decreased and the capacity of the conveyor, which is far above current production, will leave room for increased production down the line.
The conveyor belt will exist for the life of the mine and Loudon is extremely pleased with the effect it will have. There is no longer the need for 22 tonne dumping trucks to haul the product, a process which took a two hour roundtrip and DiamondCorp will make huge savings in terms of diesel costs.
“The big game changer was when we commissioned our conveyor belt,” beamed Loudon. “It’s sized at 400 tonnes per hour and the plant is 200 tonnes per hour, so we are never going to be hoisting constrained on the mine.”
DiamondCorp also made a key operational adjustment during the ramp up in production to add value to the project. The company has increased the bottom screening size from 1.0mm to 1.25mm. Having the advantage of an existing commercial plant during the tailings re-treatment allowed it to experiment with screen sizes.
The testing on tailings determined that by increasing the screen size they were getting 90 per cent of the diamonds as before but only treating 50 per cent of tonnage so it was applied to kimberlite. So while the smallest diamonds fall into the waste pile, they are the lowest value stones with the highest cost to process.
“We were able to demonstrate it would cost us more to recover [the smallest diamonds] than we’d get for selling them – It was a pure economic decision.
“It had the added benefit that the smallest fractions, the sand and the slime, are the biggest consumers of water in the plant. So by eliminating that fraction from the processing plant, we’ve reduced our water consumption from one cubic metre per tonne to around 0.7 per tonne on the balance.
“It’s a massive saving, because the biggest restriction on the ultimate mining stage of this project is water. Water is the rarest commodity in the Free State.”
Loudon understands the importance of support provided by the key suppliers up to this stage, “We’ve bought fuel from Sasoil, Sandvik have really helped with equipment and Osborne have supplied key components for the conveyor belt system.
“We try and get preferred suppliers and procurement, it’s important to build up long-term relationships with people.”
The DiamondCorp boss understands the needs of a junior company and his primary focus is cost-control which includes the fact the head office of the company and all the operating officers live on site.
“I call it ‘unconventional, but radically rational’. An old mine captain once told me a long time ago that if you can’t hear the sound of the trucks, you’re too far away from the asset,” joked Loudon.
“The only thing we can control is cost and the only way to do that is to be on the project in my view, you can’t do it by remote control.”
DiamondCorp share prices had been steadily falling in 2015 until the December announcement regarding production. Loudon explained the reason behind the second-half dip, “We encountered some difficult ground conditions getting our production tunnels done last year, we suffered from that and we don’t like it when things like that happen.
“The ramp up in production and getting everything going restored some credibility in the market for us.”
Alongside DiamondCorp’s commitment to BEE policy, entering the 26 per cent BEE transaction with Pembani and Sphere, the firm has allocated significant funds to implement a social and labour plan. It supports and mentors local business and helps start-ups in the local community. Further to that DiamondCorp is funding bursaries and learner-ships for students in the surrounding township areas with Loudon’s ultimate goal being that education converting into working in technical positions at the mine in the future.
Looking forward to this year Loudon’s next key deliverables on the mine will be entering the sale of diamonds by the end of Q1 and then ensuring the Lace Diamond mine reaches the production target by July.
His vision for the project is to have complete optimisation of the asset and in turn mine at a faster rate than is currently planned.
“We might be able to compress 25 years of mining into 17 – that will have a massive impact on the potential NPV of the project,” concluded Loudon.