1,266-carat diamond haul for Diagem (July 05, 2007)

Vancouver – Pilot-plant processing of 7,388 cubic metres of weathered kimberlite at Diagem‘s (DGM-V, DGMRF-O) Collier-04 pipe on its Property 214, located in the Juina district of Mato Grosso State, Brazil, has turned up 10,025 commercial sized diamonds weighing a total of 1,266 carats.

The company is testing the diamond content of the upper, weathered (or saprolitic) portion of its 17-hectare kimberlite pipe where 9,418 cubic metres of material was excavated earlier this year. About 30% of the material remains to be processed.

Diagem looks to generate cash flow from the sale of recovered diamonds during its evaluation process of Collier-04. Once a 3,000-5,000 carat parcel of stones is assembled, the company will submit it for valuation in the Belgian diamond-centre of Antwerp.

In its latest parcel of diamonds, 35 stones were reported in the 1-2 carat range, six weighing 2-4 carats, four fell in the range of 4-10 carats and one stone weighed 17 carats. Diagem defines its commercial size categorization as diamonds coarser than 1.7 mm.

The company is also working to boost efficiencies to the 75-80% level at its processing plant to be able to hit monthly throughputs of about 3,200 cubic metres. The addition of a second shift would then drive monthly volumes to 6,000-7,000 cubic metres, or 75,000 cubic metres annually to produce about 25,000 carats of diamonds (assuming 0.3 carat per cubic metre grade).

Diagem has blocked out three areas of weathered kimberlite for excavation where little-to-no stripping is required.

With adequate grade and volume data now generated, a resource estimate is underway for Collier-04. In the mid-1990s Rio Tinto (RTP-N, RIO-L) conducted a resource estimate, now classified as historic, of Collier-04 reviewing 13.9 million tonnes averaging 0.4 carat per tonne.

Rio Tinto retains a 1.5%-2.5% royalty on any diamond production from Property 214 and also holds a 55% back-in option, once Diagem has completed US$6 million in expenditures, by paying the junior 1.75 times its total expenditures. Additionally, the underlying land owner holds a 1.5% royalty capped at US$1.5 million then sliding to 0.5%.

Six kimberlites have been identified on Property 214, two of which are known to be diamoniferous.

Diagem saw its share price bump up 1.5 to a dime on strong volume following the diamond recovery news. The company posts a $27 million market capitalization based on its 266.7-million shares outstanding with the stock having a 52-week trading range of 7.5-to-17.5.