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DiamondCorp agrees US$33.6 mln loan terms with South Africa’s IDC for Lace mine UPDATE

This agreement marks a significant milestone in DiamondCorp's transition from developer to producer, and is bang in line with management's efforts to find a financing method which is the least dilutive for shareholders of the company.


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DiamondCorp (LON:DCP) said its 74 per cent-owned subsidiary Lace Diamond Mines has entered into a loan funding term sheet with the Industrial Development Corporation of South Africa Limited (IDC).

The IDC will grant the subsidiary a loan of 280 million Rand, approximately US$33.6 million, subject to due diligence.

Chief executive Paul Loudon said: ”We are delighted that we and our Black Economic Empowerment (BEE) partners have been able to agree in principle a debt financing proposal from the IDC to provide over 98 per cent of the estimated capital required to establish a block cave development on the 47 level at the Lace mine.

“This is a significant milestone in DiamondCorp's transition from developer to producer and we welcome the support of the IDC in funding this potentially long-life diamond mine in the Free State Province."

The money will go towards underground development and purchase of mining equipment at the Lace mine.
The term of the loan is expected to be 7 years.

Subject to completion of due diligence and satisfaction of other conditions, including approval for the upgrade of the electricity supply to the mine by South African utility Eskom, DiamondCorp expects the loan agreement to be finalised by the end of July 2012.

The group's latest estimate for the total cost of development at Lace is R384 million, around US$46 million, but with revenue expected from diamond sales after 18 months, the peak funding requirement is forecast to be R285 million, or around US$34.1 million.

The news of agreeing loan terms sent the stock higher, and by 11.10 am, DiamondCorp was trading up 7.3 per cent at 5.5 pence.

Both Northland Capital and Fairfax reiterated their ‘buy’ recommendations as well as their respective price targets of 15 and 22 pence for the share.

Northland’s Dr Ryan Long called today’s news the first of two significant developments expected to result in near term share price uplift, the second of which is recommencement of tailings’ reprocessing that will provide a revenue credit against development costs at Lace.

He expects maiden run of mine production in 2013, which will be supplemented by tailings reprocessing, and Lace should reach full production by mid-2014.

“We strongly believe in the potential of the Lace Mine and maintain our buy recommendation and price target of 15p,” Long said.

Fairfax mining analyst John Meyer views the funding as “the last key step in moving the Lace mine into development”.

Strong project economics at Lace based on the new mine plan has placed the company close to securing development funding, Meyer said, pointing out that the development money is being raised mainly in debt, giving shareholders considerable upside.

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