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Botswana to Get a New Diamond Mine

Published on Saturday 19th December 2009

Botswana could soon have a new diamond mine if African Diamonds develop the AK 6 discovery near Letlhakane.

The Irish junior miner plans to develop the lucrative AK 6 diamond discovery starting next year. The development of AK 6 has previously been the source of contention between African Diamonds and its former equity partner, De Beers. The two parties differed on the timeline for AK 6's development, with African Diamonds pushing for an immediate start and De Beers arguing for a delay. De Beers recently sold its 71 percent stake in the project to Lucara.

This week, a jubilant African Diamonds chairperson, John Teeling, announced that the mine is expected to begin commercial production in 2011 at 400,000 carats per year. This figure, will rise to one million a year as production progresses.

"The mine will be developed at a much lower capital cost than anticipated, and crucially, we have the right to market our proportion of the diamonds produced. World developments are also helping. Diamond demand is again growing and prices, which had collapsed under the credit crunch, have recovered," he said.

This week, experts said diamond prices had recovered by 61 percent from their rock bottom levels in the first quarter of the year. Teeling said due to low operating costs in Botswana, scaled down capital costs and AK 6's rare and valuable Type II diamonds, the operation has potential for significant profits.

He said AK 6 developers will ensure that the mine comes on line as quickly and efficiently as possible, leveraging on the resurgent diamond price and growing international demand.

"Diamonds are scarce and demand is growing. Ladies in China and India want diamonds because there really is nothing like them in the world.

"The AK6 diamonds are over 1,300 million years old. The Type II diamonds, which will come from the mine, are so rare that they are usually sold one by one," Teeling said.

African Diamonds say a 2008 Letseng Type II stone of 478 carats sold for US$38,500 a carat, while a recent London auction saw a 29.53 carat D colour Type II cut diamond sold for US$118,000 a carat.

Teeling said that under a new partnership it has formed, African Diamonds could increase its holding in AK 6 to 40 percent. The agreement includes the right to market African Diamonds' percentage of the production. Snapping up the additional equity in AK 6 is expected to cost the Irish junior miner less than P54 million which must be committed by the second quarter of 2010.

Teeling said AK 6 will be developed at 30 percent less than the cost estimated by De Beers through the use of various cost-cutting initiatives. Phase One of the mine is expected to cost P325 million. "Early stage indicative offers of project finance were received by African Diamonds. A project finance team, comprising Lucara and African Diamonds' executives, will seek out the best package.

"Assuming 60% debt finance and 40% equity, African Diamonds may have to subscribe for about P54 million in equity in mid to late 2010. This is a small figure to gain such a prize.There are numerous financing options," said Teeling.

He explained that costs will be kept to a bare minimum to ensure final viability."We outsource as much as possible, we build a 'fit for purpose' plant and we upgrade the existing infrastructure, which in Botswana is excellent. Mining and treatment will be outsourced, while security and diamond recovery will be kept in-house. We will recover as many, if not more, diamonds. Operating costs will be slightly higher, due to the outsourcing, but partially offset by lower indirect and overhead costs," he said.

Teeling explained that AK 6's profitability is guaranteed as its grade and carat value are both all high. They are expected to be upgraded from a 22 per hundred carat tonnes (cpht) grade at the time of the Lucara's entry to a minimum of 25 cpht when mining commences.

"The earlier valuation methods of AK6 diamonds, used by De Beers, valued broken stones as broken diamonds and downplayed the impact of the very rare Type II diamonds contained in the South Lobe of AK6. A full valuation of all diamonds recovered in AK6 exploration will be completed in early 2010," he said.

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