DIAMOND PAGE — DiamondWorks acquires pipe in Lesotho

DiamondWorks (DMW-T) has secured an option to buy a 100% interest in a portion of the Kao diamond pipe in the small southern African kingdom of Lesotho.

Lesotho, about the size of Belgium and completely surrounded by South Africa, is commonly referred to as the Kingdom of the Sky because of its high altitude. The country’s forbidding terrain and defensive walls of the Drakensberg and Maliati Ranges provided both sanctuary and strategic advantage to the Basotho natives who forged the nation.

DiamondWorks reports that previous geological data indicate that the portion of the Lao pipe that it has optioned contains a resource of about 15 million tonnes grading 0.18 carat per tonne, equivalent to about 2.7 million carats of diamonds with an estimated value of US$135 per carat.

The 8-ha portion of the diamond pipe that DiamondWorks holds represents only about 40% of its surface area, but about 65% to 75% of the pipe’s value. The company is currently negotiating to obtain the rest of the pipe.

The agreement grants DiamondWorks a one-year option, with the right to extend it for a second year. The company must spend US$245,000 to compensate the owner for lost production during the first year. A further payment of US$200,000 (possibly US$400,000, if certain circumstances develop) is expected during the second year. DiamondWorks has paid US$90,000 so far, and will pay the remaining US$155,000 in three installments.

If DiamondWorks chooses to exercise its option, it will have to pay US$3 million in cash and shares plus a 1.5% royalty on future diamond sales.

Due diligence will consist of test mining to confirm the pipe’s economic potential. The company has the right to 90% of the gross diamond sales on all of the diamonds it recovers during the first year of the agreement and 80% during the second year.

Meanwhile, DiamondWorks reports that it produced 14,500 carats at its Luo Mine in Angola during the first quarter of 1998. Average daily production was 255 carats.

The company has a diamond inventory of about 20,000 carats, and is in the process of selling a parcel of about 15,000 carats in Antwerp, Belgium.

DiamondWorks has completed drilling 23 holes on the 27.9-ha Camatchia kimberlite pipe as part of its prefeasibility study for Luo. With a diameter of about 650 metres, Camatchia is tenth-largest diamond-bearing kimberlite in the world.

Drill core has been split and sent to Australia and South Africa for preliminary grade calculations to confirm earlier grade estimates made by Diamang, an Angolan mining consortium headed by De Beers Consolidated Mines (DBRS-Q). Diamang estimated that the pipe contained probable reserves down to 100 metres of 26 million tonnes grading 0.11 carat per tonne, for 3 million carats of diamonds. Between 100 and 300 metres down, an inferred reserve was estimated at 67 million tonnes grading 0.15 carat per tonne, equivalent to 10 million carats. The pipe remains open at depth.

Drilling has revealed that the pipe has not been seriously eroded. The top 30 metres of drilling intersected crater-facies rocks and, below that, diatreme rocks. The walls of the diatreme appear to be steep. The pipe has been tested to a depth of about 115 metres.

DiamondWorks’ next task will be to obtain a 100,000-tonne bulk sample in order to produce an independent reserve estimate.

Prefeasibility drilling on the 20.7-ha Camagico pipe, situated 4 km south of the Camatchia pipe, has also begun. Camagico is listed as the world’s twelfth-largest pipe. It was exploited during the 1970s by Diamang, and is estimated to host a reserve of 730,000 carats to a depth of 100 metres. The pipe and the overlying gravel were mined to a depth of 23 metres before operations were suspended in 1984. Diamang reported that up to 8% of the diamonds recovered were of the valuable light pink variety.

On the Yetwene property, 100 km north of the Luo concession, the delivery and installation of a 100-tonne-per-hour processing plant has begun.

DiamondWorks holds a 50% interest, while the remaining 50% is held by Endiama, the state-owned diamond company.

The new diamond plant is scheduled to begin production this June, and is expected to produce between 8,500 and 9,000 carats per month. DiamondWorks plans to add a second diamond plant in 1999.

Yetwene is expected to contain a reserve of 7.8 million tonnes grading 0.23 carat per tonne, equivalent to 1.8 million contained carats. Diamonds from Yetwene have been valued at US$280 per carat.

In other news, Bruce Walsham, chairman and CEO of DiamondWorks, says all is now calm in the Kono district of eastern Sierra Leone, site of the company’s 60%-owned Koidu diamond mine. The balance of the mine is held by government and private local investors.

Sporadic fighting reported in the area in recent weeks was associated with the ouster of the military junta that seized power from democratically elected President Ahmed Tejan Kabbah last May.

DiamondWorks’ office in Freetown suffered only minor looting and damage, and its diamond processing plant and mining equipment at Koidu appear to be intact, the company reports.

The company’s country manager is scheduled to meet with President Kabbah shortly to discuss plans to recommence bulk sampling and test mining at the Koidu mine.

The mine covers an area of about 4 sq. km and hosts two kimberlite pipes, Koidu-1 and Koidu-2. The site also contains a system of kimberlite dykes and a tuff ring structure. The Koidu pipes are estimated to contain a resource of 7.58 million tonnes grading 0.35 carat per tonne, equivalent to 2 million carats of diamonds. An additional inferred resource of 5.34 million tonnes at 0.35 carat adds another 2 million carats to the resource.

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