AFRICA — DiamondWorks plans second mine

In terms of natural resources, Angola is one of Africa’s richest countries.

As a result of the country’s history of civil strife, however, those potential resources have gone largely undeveloped.

Vancouver-based DiamondWorks (DMW-T) has accepted the risks inherent to operating in Africa, and its investments in Angola and neighboring Sierra Leone are beginning to bear fruit.

Angola gained independence form Portugal in 1975 and plunged into civil war soon after. Prior to the outbreak of hostilities, the country produced in excess of 2.4 million carats of diamonds per year. Angola’s civil war officially ended in 1992, but skirmishes continued until 1994. DiamondWorks is the first company to begin full-scale diamond production in Angola since the fighting stopped.

The company began commercial production of alluvial diamonds in northern Angola on its Luo concession last July. Five months later, the Luo mine had produced 28,625 carats, roughly 6,300 carats per month. The first sale generated revenue of $6.32 million, with an average value of US$238 per carat.

“We are very pleased with our production results from the Luo mine.” says Bruce Walsham, chairman and chief executive officer of DiamondWorks. “The prices we have received for our first few parcels of diamonds confirms that the alluvial gems from our Luo Mine are among the finest in the world.” More than 35 stones larger than 10 carats and 161 stones ranging from 5 to 10 carats have been recovered since production began. Approximately one-third of the diamonds recovered to date are larger than 1 carat. Angola is estimated to host 11% of the world’s known diamond reserves, with the quality of those stones second only to those found in Namibia.

The Luo project covers 232 sq. km. near the town of Luo, in northeast Angola.

The concession hosts two large diamondiferous kimberlite pipes, the Camatchia and the Camagico, and alluvial diamond gravel along the banks of the Chicapa and Luo rivers. Three other kimberlite pipes exist on the property, including the Carambala and the Lunhinga 1 and 2. Only limited exploration has been conducted on those structures.

DiamondWorks plans to initiate a more intensive exploration program on the pipes this year.

Alluvial mining along the Luo and Chicapa rivers was undertaken in the early 1980s by Diamang, an Angolan mining consortium of which De Beers Consolidated Mining was a principal. The consortium recovered about 640,000 carats from gravels before the escalation of the war forced Diamang to abandon the project in 1984.

DiamondWorks acquired 48% of the property in 1996 through its acquisition of privately held Branch Energy, and took advantage of the diamond reserves established by Diamang. Proven and probable alluvial reserves were estimated at 217,000 carats. An additional 250,000 carats fall into the inferred category. It is believed that only one-quarter of Luo’s total alluvial deposits were mined before DiamondWorks took over.

The Camatchia pipe is the largest of the five pipes on the property, and is currently ranked as the world’s tenth-largest known diamond-bearing kimberlite. In the 1970s, Diamang estimated the pipe to contain probable reserves of 26 million tonnes grading 0.11 carat per tonne, equivalent to 3 million contained carats, to a depth of about 100 metres. A further inferred reserve was estimated at 67 million tonnes grading 0.15 carat per tonne, equivalent to 10 million contained carats, to a depth of 300 metres. The pipe remains open at depth.

DiamondWorks is currently working on a prefeasibility study, and has completed 18 holes at Camatchia. The company plans to drill an additional three to five holes in early 1998. A bulk sampling program will follow. The company also intends to proceed with a full-scale feasibility study, the basis for which is the startup of an open-pit mining operation, capable of producing 250,000 carats per year, in 1999.

The Camagico Kimberlite pipe is the world’s twelfth-largest known diamond-bearing kimberlite, and is located on the south bank of the Lou River, 5 km south of the Camatchia pipe. Diamang estimated that the pipe hosts a reserve of 730,000 carats to a depth of 100 metres. About 8% of recovered diamonds were reported to be valuable “light pinks.” DiamondWorks will continue its evaluation of the Camagico pipe, with an eye towards producing a bulk-sample large enough to evaluate the quality of about 5,000 carats.

The Luarica project is 20 km east of the town of Lucapa, and covers 435 sq.

km on the Chiumbe River. Diamang estimated that alluvial deposits on the property host a resource of 5.2 million tonnes grading 1.9 carats per tonne, equivalent to 1 million contained carats.

DiamondWorks has an initial 5-year option, and holds a 60% interest in the property. That interest, however, will be diluted to 50% once the operation achieves full production. The remaining interest is held by a private Angolan company. Test mining of the alluvial deposits is expected to commence in 1998. DiamondWorks also expects to explore the property for kimberlite pipes.

The GT project is 3 km from the Luarica concession, and covers 531 sq. km.

DiamondWorks holds a 55% interest in the property, with the remainder held by a private Angolan firm. Diamond resources on the property are found within alluvial gravel around the Chiumbe River. Based on 32 exploration pits, resources were estimated at 303,000 carats within 2.4 million cubic metres of gravel. DiamondWorks intends to further test reserves on the property.

The 50% owned Yetwene property is 100 km north of the Luo concession. The remaining interests are held by Endiama, the state-owned diamond company, and a private Angolan company. Alluvial mining there is expected to begin during the second quarter of 1998. The property is estimated to contain a reserve of 7.8 million tonnes grading 0.23 carat per tonne, equivalent to 1.8 million contained carats. A dense-media separation plant and x-ray machinery are being shipped to the site. DiamondWorks expects to produce 9,000 carats per month at a cash cost of US$280 per carat.

The 18,000-sq.-km Alto Kwanza concession, in the Bie province of central Angola, is currently the focus of a grassroots program.

The 100%-owned property is considered to have excellent potential for both alluvial and kimberlite-hosted deposits. DiamondWorks intends to fly a magnetic survey over the property this year.

Sierra Leone is situated on the west coast of Africa, bordering the Republic of Guinea to the north and Liberia to the south. After achieving independence from Britain in 1961, Sierra Leone descended into civil war, and the nation is still struggling to achieve a stable government. The United Nations recently sent a political envoy to the country to aid in the peace process.

DiamondWorks intends to continue developing its properties in Sierra Leone, but only after the political climate stabilizes.

DiamondWorks’ flagship project in Sierra Leone is the Koidu mine. The mine covers an area of 4 sq. km, and hosts two kimberlite pipes, Koidu No. 1 and No. 2, a system of dykes and a ring structure. The company has secured a 25-year lease, and holds a 60% interest in the project. The balance is held by the government and private local investors. A 5% royalty is attached to the mining lease, payable to the government. An additional 0.1% royalty goes to Sierra Leone agricultural development fund.

It is estimated that about 30 million carats of high-quality diamonds have been pulled from the Koidu pipes since their discovery in the 1930s.

Operations were suspended in 1986 as mine development lagged behind production. Growth in the gem diamond market, coupled with improved mining technology, has resuscitated the mine. Current calculations suggest that the mine is capable of producing in excess of 200,000 carats per year.

The kimberlite pipes at Koidu are estimated to contain a resource of 7.58 million tonnes grading 0.352 carat per tonne, equivalent to 2 million contained carats. An additional inferred resource of 5.34 million tonnes with the same grade adds another
2 million contained carats to the total resource.

Diamonds produced from Koidu have been valued at US$300 per carat.

DiamondWorks has invested more that US$8 million in equipment for the mine, which is currently on care and maintenance. The company could have the mine up and running within three months of some sign of political stability. A feasibility study will commence at that time.

The Upper and Middle Sewa properties are located along the Sewa River, in the eastern province of Sierra Leone. Diamonds found in the Sewa River were transported from primary sources in the north, from the Kono and Tongo diamondfields.

The upper Sewa property covers about 14 km of the main river channel, including terraces and flats, as well as the Yombi River valley. The Middle Sewa property is located 60 km downstream, and covers about 13 km of the main Sewa channel, including associated terraces and flats.

The company holds a 50% interest in both the Njei-Bafi and Matemu properties.

Njei-Bafi is situated near the confluence of the Njei and Bafi rivers, in the Kono district. The Matemu concession sits between the towns of Bo and Kenema.

DiamondWorks intends to explore both properties for further alluvial diamond occurrences, as well as kimberlite pipes.

Previous resource estimates indicate that each of the properties hosts about 10,000 carats in the proven and probable categories.

DiamondWorks has 110.5 million shares fully diluted, and a working capital of about US$10 million.