Lucara Diamond (LUC-V) is in talks to acquire Motapa Diamonds (MTP-V). The two companies are joint-venture partners on the highly prospective Mothae diamond development project in Lesotho.
The Mothae diamond project is adjacent to and on trend with the world-famous Letseng diamond mine in the Maluti Mountains of central Lesotho, about 70 km from Mokhotlong, the capital city of Mokhotlong district, one of the remotest parts of the country.
Under the proposed acquisition, each Motapa share would be exchanged for 0.9055 shares of Lucara, representing a 104% premium to Motapa’s trailing 20-day volume-weighted average price on the TSX Venture Exchange.
The exchange ratio is based on the number of Motapa shares outstanding. (Upon exercise of any or all of Motapa warrants or incentive stock options, the exchange ratio would be adjusted so that upon completion of the transaction, Motapa shareholders would hold 35% of the combined company.
Lucara Diamond is an Africa-focused diamond exploration and
development company and part of Lundin Mining‘s (LUN-T, LMC-n) group of companies.
Motapa holds a portfolio of wholly owned and joint-venture projects and option agreements in Lesotho, the Democratic Republic of the Congo, Gabon, and Namibia. Its flagship project is Mothae in Lesotho.
The Mothae diamond project is a joint venture between Lucara (65%) and Motapa (35%).
The Mothae kimberlite is an 8.8 hectare pipe 6.5 km northwest of the Letseng diamond mine, which has produced some of the largest and most valuable diamonds in the world.
The joint-venture partners are in the final stages of a 100,000-tonne bulk sample of the Mothae kimberlite. So far the joint venture has conducted about 2,400 metres of delineation drilling to confirm a tonnage to about 200 metres. The surface extent of the kimberlite is approximately 8.8 hectares.
Diamond recoveries have confirmed a coarse stone size distribution and a significant population of Type IIa diamonds.
So far the partners have uncovered four diamonds greater than 20 carats, 10 diamonds greater than 10 carats and 51 diamonds greater than 5 carats.
“The key factor in the results is that the grades are more than double what we originally expected from the bulk sampling project and coupled with that, we have seen a much coarser stone distribution which will grow the overall value of the deposit itself,” William Lamb, Lucara’s general manager, said in a telephone interview from Vancouver.
Lamb said they are looking at going to a trial mining phase in early 2010. Information from the trial mining phase would be used to conduct prefeasibility and feasibility studies, he explained.
“It’s really weathered kimberlite which is to our advantage because we don’t have to drill and blast and that’s what we’re processing at the moment.”
Motapa identified Mothae as a large, low-grade kimberlite that has the potential to contain a population of large Type IIa diamonds, similar to the Letseng pipe.
The nearby Letseng diamond mine is the highest diamond mine in the world at an average altitude of 3,100 metres above sea level. Gem Diamonds (GEMD-L) owns 70% of the mine in partnership with the Lesotho government, which owns the remaining 30%.
Letseng was operated by De Beers between 1977 and 1982 before it was shut down due to the economic slump at the time and because the grades and value were uneconomic. Letseng was reopened in 2004 and acquired by Gem Diamonds in late 2006 for US$118.5 million.
The Letseng mine is characterized by extremely low-grade ore (less than 2 carats per hundred tons) but is well known for producing huge diamonds. It has the highest percentage of large diamonds (greater than 10 carats, giving it the highest dollar value per carat of any diamond mine.
In October 2006, Letseng produced a 603 carat (121 gram) white diamond called the Lesotho Promise — the largest reported find this century and the 15th largest diamond ever found. The mine also produced the Lesotho Brown, a 601 carat (120 gram) diamond in 1967.
If Lucara’s proposed acquisition of Motapa goes ahead, the combined company would become the leading diamond exploration and development company in Africa “via organic growth and acquisition opportunities,” Lucara stated in a press release.
The combined company would have additional exploration assets in Namibia, Gabon and the Democratic Republic of Congo.
Motapa and Lucara have undertaken to finalize a definitive agreement by April 23 to define the implementation of the plan of
arrangement.
Lucara’s Lamb said consolidation among juniors in the diamond industry will create stronger companies that have the wherewithal to develop diamond projects into mines, adding that demand and supply fundamentals for the gemstones remained very strong.
“When they talk about world-class mines that actually affect supply and demand functions, they’ve really got to produce in excess of five to ten million carats and even in exploration there is nothing of that size out there right now,” he said. “So there is going to be a continuing widening of the gap between the demand for rough and that which the diamond miners can supply.”
Lucara is trading at 50¢ per share and has a 52-week trading range of 20¢-$1.10 per share. The Vancouver-based company has 58.4 million shares outstanding.
Motapa currently trades at about 35¢ per share; the company has a 52-week trading range of 12.5¢-50¢ per share and has 37.9 million shares outstanding.
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