big diamond groups targeting small mines

Big diamond groups targeting big bucks from small mines
By Jamie Nimmo

Could the diamond giants be turning their attentions to smaller projects?
That’s the suggestion from Martin Doyle, the executive chairman of AIM-listed Paragon Diamonds (LON:PRG), which is developing the Lemphane diamond project in Lesotho.
“Whereas in the past De Beers was looking for giant mines, something of the size of Lemphane may not have been of interest to them, but it could well be economic today.
“If you can’t find big ones with diamonds, you’re going to say ‘maybe we should look at small ones’.”
It’s an issue the natural resources industry as a whole – not just diamonds – has experienced; how will supply keep up with demand?
The trick for miners is to explore areas that have already been explored to a certain extent – areas where either the technology or the money was not available before to make the deposits economic.
Smaller projects may then become more attractive to the likes of De Beers as they are reassessed.
“That’s not to say De Beers is interested in Lemphane, but that it’s interested in that size of deposit,” Doyle is quick to clarify.
Lemphane is Paragon’s 85%-owned diamond project in Lesotho, which is a hotbed for similar deposits.
Gem Diamonds (LON:GEMD), Namakwa Diamonds and Firestone Diamonds (LON:FDI) all have projects in the small southern African nation.
Being a latecomer to the party has certainly played into the company’s hands as Doyle explains.
“One of our big advantages here is that being the new kid on the block, we’ve been able to learn from all the other operations that have been breaking diamonds, not recovering them.
“The availability of better technology means you are now able to process larger sizes of rock before they go through crushing.
“If you get the sample size right, you get the processing right so we’ve got a better flowsheet learning from the rest so we’ll improve liberation, improve breakage and maximise recovery.”
The company’s neighbours have certainly proved that the big stones are where the big money is to be made.
Gem Diamonds, which reported improving prices at the start of the year, went on to sell two exceptional plus 160 carat rough diamonds from its 70%-owned Letšeng mine for US$13.5mln.
In a kimberlite, most of the value – around 80% of it – will lie in about 20% of the stones, or “the big stuff” as Doyle puts it.
“The small stuff does have value, but you’ve got to balance that between cost of recovering it and the price you will get for it. The way you deal with that is by purposefully not recovering some of the small stuff,” he says.
“You will raise the screen size where you make it larger and larger so more of the small stuff will fall through.”
Paragon is hoping to emulate its neighbours by uncovering these larger diamonds.
The path to auction though will take some time. The company is in talks with financiers over the funding of the stage 1 production to begin later this year.
That will be a two-year period, which will see one million tonnes of kimberlite mined.
Stage 2, to start in 2017, will see the group increase production to 3 million tonnes a year within three years, which is when it expects to start recovering the larger diamonds.
But the group is not a one-trick pony. It also has Motete in Lesotho, just 10 kilometres down the road from Lemphane, as well as projects in Zambia, Botswana, and Tanzania.
Doyle is particularly upbeat about Botswana as a diamond-producing country.
“I’m quite bullish on Botswana. I think there’s still opportunity there and we’ll keep an eye on developments and what’s coming up. But clearly our focus at the moment has to be Lemphane.”