1,266-carat diamond haul for Diagem (July 23, 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, in Brazil, has returned 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 the 17-hectare kimberlite pipe from which 9,418 cubic metres of material was excavated earlier this year. About 30% of the material remains to be processed.

Diagem is planning to generate some cash flow from the sale of diamonds recovered during its evaluation of Collier-04, located in the Juina district of Mato Grosso state. Once a 3,000- to 5,000-carat parcel of stones is assembled, the company will submit it for valuation in Antwerp, Belgium.

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

The company is also working to boost efficiencies to 75-80% 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 or no stripping is required.

Now that there is adequate grade and volume data for Collier-04, a resource estimate is being calculated. Rio Tinto (RTP-N, RIO-L) conducted a historic estimate in the mid-1990s that pegged the resource at Collier-04 at 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 spent US$6 million, by paying the junior 1.75 times its total spending. Additionally, the underlying landowner 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 diamondiferous.

Diagem saw its share price climb 1.5 to a dime on strong volume following the news. The company posts a $27-million market capitalization based on its 266.7 million shares outstanding. The stock has traded a 52-week range of 7.5-17.5.