African Diamonds accelerating AK6 development with mine expected to come on stream in 2011

In its interim results statement, African Diamonds (AIM: AFD) said the pace of development at the AK6 diamond mine in Borswana is accelerating, with the mine expected to come on stream in 2011 and within previously set cost parameters.

In the six months ended 31 December 2009, the operation was boosted by a rapid improvement in world diamond demand and prices, with the AK6 diamonds per carat value expected to be in the region of US$200 compared to US$138 as used in existing studies.

The restructured mine development plans will benefit from increased throughput in Phase-1 of up to 3 million tonnes instead of 2 million tonnes, and the company is also increasing the average size of diamonds recovered and reconfiguring production to recover large Type II diamonds.

"Our new partner, Lucara (Diamond Corp (TSX-V: LUC)), has the same objectives as us to bring the mine on stream as quickly and efficiently as possible.  The mine will come on stream at the perfect time; prices and demand are high. The recent valuation report has also vindicated our view that AK6 will produce high quality beautiful stones”, African Diamonds chairman John Teeling commented. “This is an exciting time for African Diamonds and its shareholders as we move forward and develop AK6".

The company highlighted that there is a high ratio of Type II diamonds in AK6, and these very rare diamonds contain no nitrogen and tend to be large. As such they command very high prices and some experts believe that the proportion of Type II stones in AK6 may be larger than previously estimated, African Diamonds said.

Consequently the AK6 treatment plant has been reconfigured to enable the recovery of these stones and the company believes the presence of Type II diamonds could have a very favourable impact on revenue.

African Diamonds said it is at an advanced stage in completing financing to cover expenditure in 2010 and 2011.  The company noted that it is being mindful of equity dilution, and it believes that its newly acquired right to market their percentage of AK6 output is a valuable asset which is helping in its funding.

The final feasibility study will be completed in late May, and site development will start by September 2010.  According to African Diamonds, the indications on operating and capital expenditure and revenue are in line with previously reported levels. Indeed, the company stated that whilst the world recession is hurting many, it is providing a boon to the AK6 development. According to African Diamonds, equipment prices have stabilised or fallen, delivery times have shortened and skills are available. All of which have helped maintain capex and opex within the parameters of earlier studies.

While its focus is clearly on the development of AK6, African Diamonds said other opportunities are not being neglected. Joint venture proposals are being considered on two other Botswana kimberlites in the company’s portfolio and it hopes to begin detailed exploration of a third kimberlite.

As it advances AK6 mine development, African Diamonds narrowed its pretax loss to £205,000 for the six-month period from 775,000 a year earlier.
Broker FinnCap issued a note on the company following the interim results announcement, making the point that the current heavy discount may be due to the market expecting a fund raise to finance the exercise of African Diamonds’ call option to increase its interest in AK6 from 28 percent to 40 percent.

The broker pointed out that several key items of news flow are imminent, starting with the delivery of the revised feasibility study in May. Construction of the mine is slated to begin in September with full production being reached during the 2012 financial year.

It further noted that Lucara, an associate company of the Lundin Group, will be the operator of AK6, and that over the last 20 years, the Lundin Group has earned a good reputation for building mines on schedule and budget. It considers the diamond industry in Botswana well-established and mentioned that the government has undertaken to provide AK6 with grid power once production starts.

http://www.proactiveinvestors.co.uk/companies/news/14559/african-diamonds-accelerating-ak6-development-with-mine-expected-to-come-on-stream-in-2011-14559.html