DIAMOND PAGE — SouthernEra forges ahead at Marsfontein

With their dispute over the Marsfontein farm settled, partners SouthernEra Resources (SUF-T) and De Beers Consolidated Mines (DBRSY-Q) have turned their attention to mining the high-grade M1 kimberlite pipe.

The two received a mining permit in mid-July and recently began stripping 500,000 tonnes of overburden in preparation for the start of full-scale open-pit mining next month. Some mined material has been sent to the processing plant, yielding an unexpected 22,390 carats of diamonds.

“We did not factor this into our financial model, so it is a pleasant surprise,” says SouthernEra president Chris Jennings. “One of our main objectives is to determine what overburden should go through the plant as ore and what should be treated strictly as waste.”

Residual minerals from weathering commonly overlie diamondiferous (and barren) kimberlite in Africa, but are typically erratic in grade. As a result, the residue is unrepresentative of concentrations in the underlying primary source. At M1, minable reserves are pegged at 512,400 tonnes averaging 3.08 carats per tonne. The reserves account for 15% dilution and are estimated to a depth of 100 metres.

Mining is being carried out by contractors and overseen by De Beers. All mined material will be processed at SouthernEra’s diamond recovery plant at its nearby Modderfontein farm, with recovered diamonds to be marketed through De Beers’ Central Selling Organization (T.N.M. June 29 to July 5/98).

Current reserves are sufficient for two years of production, though additional tonnage has been intersected to a depth of 200 metres. In addition, there are several nearby pipes and fissures that remain underexplored.

The start of mining at Marsfontein ends several months of turmoil between the companies. Earlier this year, the two locked horns after De Beers announced it signed a deal with a group of South Africans involved in a dispute with SouthernEra over rights to mine M1. With the courts offering little hope of a quick resolution, the companies resolved their differences in late June.

The deal between SouthernEra and De Beers gave the latter a 60% interest in the farm, leaving SouthernEra and South African-based partner Randgold and Exploration with 40%. Randgold has since agreed to relinquish its share to SouthernEra for R$61.2 million, payment of which is due in mid-October.

The deal encompasses the entire Marsfontein farm, with SouthernEra gaining the exclusive right to process all mined material. In return, it agreed to market through De Beers those diamonds mined from its adjoining Klipspringer properties.

“It has been full-speed ahead, and we have left the past behind us,” says Jennings. “By year-end, we should be the second-largest producer of diamonds in South Africa, though still a long way behind De Beers.”

Meanwhile, at Klipspringer, exploration and development is being stepped up. At the Leopard fissure, development ore is being stockpiled, with processing in a 300-tonne-per-hour mobile recovery plant to begin in February. The plant is expected to process 10,000 to 12,000 tonnes of material per month.

The Leopard fissure, which hosts a resource of 3.8 million tonnes grading 0.753 carat, is one of two fissures being developed on farms wholly owned by SouthernEra. The other, Sugarbird, hosts 4.48 million tonnes at an as-yet-undetermined grade. A pipe-like enlargement of that fissure was recently mined out, yielding roughly 80,000 carats in five months. Fissures, unlike pipes, generally maintain a consistent grade along strike and at depth.

Regional exploration elsewhere on the 48,000-ha property continues, as does the large-diameter, reverse-circulation drilling of the small Kudu pipe.

The Kudu pipe is situated between the Leopard and Sugarbird fissures. A 1,921-tonne sample from there yielded 173 carats valued at an average US$203 per carat. The three largest stones weighed 10.43, 5.3 and 4.2 carats.

Financially, SouthernEra earned $2.1 million (or 8 cents per share) in the three months ended June 30, compared with losses of $1.4 million in the similar period of 1997. Revenue for the periods was $11.3 million and $259,000, respectively. This is the first period in which the company has reported a quarterly profit.

Production from Klipspringer totalled 49,951 carats in the recent quarter, whereas 8,015 carats were produced from the company’s jointly owned Lou and Cassanguidi diamond properties in Angola. SouthernEra incurs 100% of the costs at both Angolan properties, but receives 46% of revenue generated from Lou and 50% from Cassanguidi.

At June 30, SouthernEra had $6.2 million in cash and $7.8 million in working capital.