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MOU to acquire Mothae Kimberlite Diamond Project in Lesotho from Lucara
Paragon Diamonds Limited, the AIM quoted diamond development company, announces that it has signed a Memorandum of Understanding with Lucara Diamond Corporation, a TSX quoted mining company, to acquire a 75% interest in and operate the defined Mothae Kimberlite Resource, which is located only 5 km from the world class Letŝeng le Terai diamond mine in Lesotho.
The Acquisition is subject to approval from the Government of Lesotho, a binding share purchase agreement, contracted albeit agreed funding and certain other regulatory approvals. Mothae represents a low cost opportunity for Paragon to generate significant value for shareholders through the recovery of additional large high value diamonds in tandem with the commencement of Stage 1 production at Paragon’s nearby Lemphane Kimberlite Pipe Project.
In a statement the company said “As a result of this exciting acquisition, the Company believes that it is wholly appropriate to ensure that both Lemphane and Mothae are constructed simultaneously and thus at the lowest possible cost to benefit from economies of scale whilst adjusting the timescale for commencement of production of the enlarged asset portfolio to Q3 2015”.
Overview:
* Transforms Paragon into aleadingdiamond development companywith near term
revenue
*
+ Expected combined revenues of approximately US$36 million in the first
year of full production based on current resource estimates.
+ Mothae adds indicated/inferred resources of 39Mt at 2.7 cpht at
US$1,060/ct to Lemphane’s 48Mt of kimberlite under evaluation and
development.
+ Resource contains large, high value diamonds with 14 diamonds recovered
between 10.6cts and 56.5cts with an average per carat value of between
US$5,482 and US$41,869 following an extensive sampling programme –
21,700cts recovered from circa 0.6Mt, at sampled grades of between
2.1-5.1cpht.
+ Developing Mothae and Lemphane concurrently will allow Paragon to
benefit from significant economies of scale resulting in cost savings
for equipment, management and services.
* Acquisition and development capital securedat no dilution toshareholders
*
+ Acquisition at a cash cost of US$8.5 million (0.8% of in-situ resource
value).
+ An existing processing plant and infrastructure at Mothae is part of
the acquisition cost and will be upgraded at a cost of approximately
US$5 million which will allow initial mining of 0.75Mt/yr. rising to
2Mt/yr. within two years. Upgrade works are due to commence as soon as
the Acquisition is closed which is expected to be in Q2 or early Q3
2015.
+ The acquisition cost of US$8.5 million and the additional US$5 million
development capital and US$3 million opex provision required to bring
Mothae into production will be financed in the form of a loan note from
International Triangle General Trading LLC (`ITGT’), the terms of which
have been agreed subject to contract, and similar to the funding for
Lemphane. Such funding is in addition to the planned US$12 million debt
and equity package from ITGT which was announced on 28 January 2015 to
bring Paragon’s Lemphane kimberlite project into production in 2015.
* Attractive economics of producing large high value stonesat Mothae
*
+ Net Present Value of US$115 million (discounted at 12%) over 13 years’
Life Of Mine (LOM), and an IRR of 116% for an initial 0.75Mt/yr. mine,
rising to 2Mt/yr. within two years based on a total investment of US$50
million based on management’s preliminary internal model.
+ Development plan focussed on a higher grade, higher value apportionment
of the kimberlite at circa 20Mt. As a result the plant size would be
smaller leading to a lower capex over the LOM.
* Building a leading vertically integrated diamond company
*
+ The Acquisition is in line with Paragon’s strategy to secure
exceptional and reliable sources of large valuable diamonds, and build
a leading integrated diamond house with significant interests across
the investment grade diamond value chain from production all the way to
the final investor and the end consumer.
+ Management expect that production generated from Mothae will be
combined with production from Lemphane to be distributed via a sales
company specifically established by Philip Falzon Sant Manduca,
Executive Chairman of Paragon to enhance Paragon’s revenues from the
production.
+ Paragon has signed an MOU with Northern Fissures Limited (`NFL’) to
dispose of its interest in the Motete Dyke Project (“the Project”). NFL
has undertaken to invest approximately US$1.5 million into definitive
evaluation work on the Project over the next two years and Botle, a
subsidiary of Paragon, shall retain the right to a free earn-in of up
to 10% of the equity of NFL, in recognition of work undertaken to date
valued at US$1 million, subject to NFL taking the project to
feasibility status and being awarded a mining lease. Neither Botle nor
Paragon shall be responsible for any future costs or liabilities
incurred in achieving this objective. This agreement is consistent with
Paragon’s focus of all its energies and capital on the development of
the Lemphane and Mothae kimberlite projects.
Paragon’s Executive Chairman, Philip Falzon Sant Manduca said, “This is a tremendous opportunity, a major coup for Paragon, one which we had to prioritise the acquisition of, once Lucara announced their intention to dispose of the asset at the end of last year, and wholly justifies, in my opinion, minimally re-scheduling our intended production timetable by a matter of a few weeks for Lemphane from Q2 to Q3 2015 to benefit from joint production savings and production efficiencies from both assets.
“This hugely important acquisition re-rates and simultaneously de-risks Paragon’s business model, and elevates us overnight into an important and sizeable diamond company. Our Dubai based partners, ITGT, have agreed to provide the entire funding, for both Lemphane and Mothae, of approximately US$28 million, to allow us to accelerate the combined production schedules of both assets. I do not expect any undue delay in signing the acquisition contract, as the Lesotho Government has been informed of the intended acquisition at every step of the process, intensively so in the last two weeks, and is encouraging a rapid commencement of the production schedule, which suits all of us.
