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PARAGON DIAMONDS LTD: Positive Modelling Report - Lemphane Diamond Lesotho

 PARAGON DIAMONDS LTD: Positive Modelling Report - Lemphane Diamond Lesotho Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources       5 June 2014      Paragon Diamonds Limited (`Paragon Diamonds' or the `Company')           Positive Results of Independent Modelling Report at the Lemphane Kimberlite                                   Pipe Project, Lesotho                               Paragon Diamonds Limited, the AIM quoted diamond development and production company in Africa, is pleased to announce positive results of an independent size frequency and revenue modelling report based on 300 carats of diamonds recovered during the 2012/3 bulk sampling programme at its Lemphane Kimberlite Pipe Project (`Lemphane' or `the Project') in Lesotho. These results support enhanced economics of the Project ahead of the commencement of Stage 1 Production in the near to mid-term.    * A +100 carat diamond expected per million tonnes processed       * Anticipated diamond values projected between US$930/carat and US$1,025/     carat, to be verified during Stage 1 production       * Size frequency indicates 12% of carats as diamonds exceeding 9 carats       * Conservative overall grade of 2cpht used for basis of modelling   Ahead of commencement of planned Stage 1 Production, the Company commissioned The MSA Group, and Dr. Johannes Ferreira to undertake a size frequency and revenue modelling report to independently verify the Company's in-house estimates. Dr Ferreira is an internationally recognised authority in this field and has previously studied other large diamond size, exceptional value but low grade diamond deposits, including the Mothae kimberlite in Lesotho, Lucara Diamond Corp's Karowe Mine in Botswana, and DeBeers' Victor Mine in Canada.  Circa 300 carats of diamonds were recovered from a bulk sampling programme of over 15,000 tonnes of kimberlite at Lemphane, which was concluded in June 2013. The majority of these diamonds were subsequently independently valued by WWW International Diamond Consultants in September 2013. It should be noted however, that the values obtained relate only to the actual diamonds recovered. Diamonds exceeding 9 carats were not recovered due to limited sample size, although their occurrence can be statistically predicted with confidence. Large diamonds carry exceptional value (over 80% of the total value at the nearby Let šeng Mine) and modelling seeks to address this by applying appropriate values to large diamonds anticipated to be recovered during mining operations. Size frequency and value modelling are standard statistical techniques to determine the anticipated diamond sizes and values that would be expected in the much larger diamond populations recovered during production operations.  Diamond Size Frequency  For the diamonds exceeding +7DTC (≡2.46mm Ø or nominally greater than 0.15 carats, representing 74.3% of total carats) expected to be recovered during planned production operations, the relative percentages of large diamonds are shown in the table below:  51.3 % of carats are in diamonds exceeding 1 carat in size (≈ 4 grainers)                                                                                                              12.3 % of carats are in diamonds exceeding 9 carats in size                                                              6.0 % of carats are in diamonds exceeding 20 carats in size                                                              2.3 % of carats are in diamonds exceeding 50 carats in size                                                              0.96 % of carats are in diamonds exceeding 100 carats in size                                                            0.14 % of carats are in diamonds exceeding 300 carats in size  The results are based on the northern and southern domains of the 6 hectare Lemphane Kimberlite as delineated and sampled to date. The southern domain, which represents circa 60% of the kimberlite, also produced better results in terms of grade, diamond size and value, than the average across the pipe reflected in this study.  Dr Ferreira also commented: "the size component in this exercise is more reliable than the value component, and is very likely to change when more diamonds are recovered and added to the modelling procedure"  Based on these results, Stage 1 production can be expected to recover in excess of 100 diamonds larger than 9 carats, including diamonds up to 100 carats in size. Over the entire 48.6Mt of kimberlite delineated by drilling to date, the expectation would be for some 50 diamonds in excess of 100 carats and 175 diamonds in excess of 50 carats (i.e. two to three a year and one a month respectively if mined at 3Mt/yr), including diamonds of over 300 carats in size, being recovered.  Diamond Values  Diamond value is modelled by applying known and anticipated values to the expected diamond sizes to be recovered. Within the sample, no diamonds exceeding 9 carats were recovered; however, large Lesotho diamonds regularly fetch exceptional prices. It is therefore necessary to apply anticipated large diamond values to the diamonds which may be forthcoming during Lemphane production operations.  To this end, two models were generated, at the high and low end of the observed value data. Based on values modelled on diamonds up to 9 carats, the +7DTC (+2.4mm) diamonds achieved values of US$505-US$625 per carat. However, the anticipated production of diamonds based on the planned 1Mt of kimberlite from Stage 1 Mining will include larger diamonds up to 100ct. By applying large diamond values reported from the nearby Mothae Project to the +15ct diamonds, average diamond values of between US$930 per carat and US$1,025 per carat were estimated, compared to the previous in-house assumption of US$750 per carat used for planning to date. In Stage 2 Mining, with the increased recovery of larger diamonds, potentially including +300ct stones, even higher values could be realised, however, these will be modelled on the basis of Stage 1 Mining results.  The report noted: "Both models fall within the range of sample values but in view of knowledge of other pipes in Lesotho these values may all be conservative"... "[at] an average diamond value of US$7,196 observed for +19ct stones at Mothae a series of average values up to US$7,000 per carat [were] assumed for +15ct stones at Lemphane to examine potential average revenue"  Processing plant  Further to the MOU announced in December 2013 in respect of the 75tph processing plant on 17 December 2013, this agreement has been formally terminated and revised plant options, including the availability of part or all of the Mothae plant are being evaluated and will be implemented upon completion of financing.  Paragon's Managing Director, Dr Stephen Grimmer commented: "We are delighted  that this independent report confirms the exciting economic potential of our flagship Lemphane projectin Lesotho as we move towards Stage 1 production. The report highlights that our in-house calculations of preliminary diamond values comfortablyexceeding US$750/carat and predicts the recovery of diamonds up to 100 carats in size even in the early stages of production.In stage 2, with the anticipated frequent recovery of large stones we would expect that the value would increase further, certainly in the realms of $1,500/carat envisaged in the published scoping study. Lemphane has always shown potential to produce large, exceptional diamonds, and we feel the comparison with other high-value Lesotho kimberlites, made in this study, is fair and offers further upside, given recentremarkable diamond values achieved at neighbouring mines†".  † Recent historical production from the neighbouring Letšeng and Kao Mines  has yielded large diamonds of exceptional value. At Letšeng, a 162.0ct type IIa diamond fetched US$68,687 per carat (US$11.13M) and a 161.3ct type I diamond fetched US$14,636 per carat (US$2.26M); at Kao two white gems of 53.7ct and 32.6ct fetched US$46,896 (US$2.52M) and US$38,392 (US$1.25M) per carat respectively.  [Source: Gem Diamonds 5th March 2014; Fusion Alternatives' Kao Rough Diamond Tender, March 2014]  In accordance with the AIM Rules for Companies, the information in this announcement has been reviewed by Stephen Grimmer PhD., MSc., a qualified geologist with over 25 years diamond exploration experience.                                 **ENDS**                                      For further information please visit or contact:  Martin Doyle          Paragon Diamonds Limited         +44 (0) 20 7099 1940                                                                                  Simon Retter          Paragon Diamonds Limited         +44 (0) 20 7099 1940                                                                                  Lindsay Mair          Sanlam Securities UK             +44 (0) 20 7628 2200                                                                                  Catherine Miles       Sanlam Securities UK             +44 (0) 20 7628 2200                                                                                  Felicity Edwards      St Brides Media and Finance Ltd  +44 (0) 20 7236 1177                                                                                  Frank Buhagiar        St Brides Media and Finance Ltd  +44 (0) 20 7236 1177      Notes  Paragon Diamonds has a pipeline of projects in Lesotho, Botswana and Zambia, the most advanced of which is its Lemphane Kimberlite Pipe Project in Lesotho, located close to the world class Letšeng mine, Lesotho's largest diamond mine. Lemphane is the last known world-class sized kimberlite to be developed in Lesotho. Among the stones recovered in the Company's 2013 bulk sampling programme were several large high value stones of up 8.9 carats in size and individual diamond values in excess of US$2,400/ct have been achieved, demonstrating the potential for Lemphane to hold large and valuable diamonds. The first of a two stage production programme is currently expected to commence late 2014 (subject to financing) which will further define the resource at Lemphane. As increased tonnages of kimberlite are processed the proportion of larger diamonds recovered will improve, increasing the average value of diamonds recovered at the project, as was the case at Letšeng.  Stage 1 production will cover a two year period during which approximately 1 Mt of kimberlite will be mined and processed out of the currently estimated 48.6Mt of kimberlite (to 350m depth) at the site, using a 75 tonne per hour processing plant. The Company is targeting 20,000 carats during Stage 1 production with an estimated minimum value of US$750 per carat that is expected to generate revenues in excess of US$8m per annum. Cash flow will be reinvested to further develop Lemphane and complete a bankable feasibility study, a 3D geological model and a substantial inferred resource ahead of commencing the Stage 2 production phase. Stage 2 will see production ramped up to 3Mt/year with peak production expected to hit 65,000 carats per year of high value diamonds.  END 
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