The Directors of African Diamonds plc (AIM: AFD), the Botswana diamond company, are pleased to give an update on the progress of the AK6 diamond discovery in Botswana. The timeline remains first production in late 2011.
- Latest diamond valuation of US$162 a carat is US$23 a carat higher than that used in our current studies. The valuation indicates the possibility of a US$200 a carat value at production.
Project is on target for a late 2011 start-up.
Major upside potential in high purity stones: No attempt was made to value the impact of the large Type IIA diamonds which were recovered in a broken state in the exploration drill diamond samples.
Changes are being made to the processing plant to minimise diamond breakage and allowing the recovery of diamonds up to 350 carats in size.
The plant is being refigured to increase start-up capacity from 2 million tons to 2.5 – 3.0 million tons of ore a year.
Bottom size cut-off size being evaluated to optimize plant throughput and maximize revenue.
A valuation of 1,760 carats of diamonds from AK6 was undertaken in Geneva by Shlomo Tidhar of Mercury Diamonds. The diamond parcel included 1,175.7 carats of diamond recovered from large diameter drill samples that were processed to recover diamonds greater than 1 mm, and 584.5 carats of diamond recovered from trench samples that were processed to recover diamonds both at a 1mm and 2mm bottom cut off. Mercury noted that “Overall the diamonds from AK6 are deemed to be of very good quality and very attractive to diamond buyers. Colours are generally very white and the samples showed numerous examples of ‘blocky’ makeable and strong crystal forms that tend to lead to strong polished yields and demand a premium. There was a significant presence of Type IIA stones including 12+ carat stones that had been broken into 8 or more fragments”.
The modelled valuation of the sample was US$162 a carat. It was noted by Mercury that diamond breakage was a significant problem in the samples, chiefly caused by the drilling and diamond recovery process. They noted that “there is much upside valuation potential if breakage were to be reduced and/or eliminated”.
Mercury noted that 34% of the value of the sample was made-up of nine large stones greater than 5 carats and that “this figure (the valuation) understates the true value proportion of the largest stones”.
Accordingly, the plant is being adapted to minimise breakage and to allow diamonds up to 350 carats to be recovered. We expect this to dramatically improve project economics.
In considering the extent of diamond breakage, presence of Type IIA stones and comparatively coarse size distribution, Mercury summarized that: “In Mercury’s opinion, it is reasonable to expect that full scale production could produce a value in the US$200 per carat range”.
A review of detailed valuation information is underway to determine the optimum bottom size cut-off screen in order to increase plant throughput by feeding less material to final diamond recovery, and maximize revenue by deferring recovery of lower value small diamonds.
This release has been approved by Alex van Zyl, Technical Director African Diamonds. Alex van Zyl (B.Sc. Stellenbosch, B.Sc. Hons. Pretoria) spent a long career in Anglo American in the diamond division, ending up 1990 to 1997 with worldwide responsibility for diamond exploration and evaluation. He was a consultant to De Beers from 1997 to 2002.
John Teeling, Chairman, commented: “The US$162 a carat value on AK6 diamonds is excellent and substantially higher than previous valuations. The following factors are important in valuing AK-6 bulk sample diamonds:
Drilling and recovery during exploration broke most of the large Type II diamonds. The valuers could only value what was in front of them, but noted the potential price increases of 12 to 15% if breakage is reduced or eliminated.
The current market for rough diamonds is at a volatile state, with prices having increased substantially over the past year. It is not certain if this trend will continue or if the current pricing levels can be sustained.
The plant has been redesigned to minimise breakage and, far more importantly, to allow diamonds up to 350 carats to pass through. Typically diamond values rise exponentially with diamond size: in our sample, a 10 ct stone is worth four times, not just twice a 5 ct diamond. We therefore anticipate that the diamond value could be over US$200 a carat.
Our decision to commence production at 2.5 – 3.0 million tons a year with a larger screen size will have a very significant impact on Revenue, Cash Flow and Present Value.”
