Koidu sells initial production (February 10, 2004)

Partners DiamondWorks (DMW-T) and privately held Magma Diamond Resources have sold their first batch of stones from the recently revived Koidu diamond project in Sierra Leone.

During January, 12,480 tonnes of material from Pipe no. 1 at Koidu surrendered 8,099 carats of diamond. The stones sold for US$1.8 million, or US$223 per carat. January’s recovered grade averaged 0.65 carat per tonne (cpt), in line with a historical estimate of 0.67 cpt.

The average stone size weighs in at 0.31 carat, with 93% of the diamonds described as gem quality. The package also includes 16 special stones each exceeding 10 carats, including four weighing more than 20 carats; two other stones tip the scales at more than 30 carats apiece.

The two largest diamonds weigh in at around 30.1 carats and 35.8 carats, and sold for US$2,700 and US$2,200 per carat, respectively. In all, the special diamonds fetched US$1,108 per carat.

DiamondWorks says that the initial sale from Koidu excludes diamonds recovered from Dyke zone B, overburden and other start-up material treated during the commissioning phase late last year. That production chipped in an additional US$195,000.

Koidu is home to two kimberlite pipes (nos. 1 and 2) and four dyke zones (A, B, C and D). Historical resource figures peg resources in Pipe no. 1 at 1.6 million tonnes running 0.67 cpht; Pipe 2 is estimated to contain 3.1 million tonnes grading 0.4 cpt.

The project resumed operating late last year after the establishment of peace following a decade of civil war in Sierra Leone. Some US$14 million was spent to revive the project.

Says DiamondWorks CEO, Tony Teixeira, “We are very pleased to report that grade and prices achieved for the initial production from Pipe no. 1 have met with our expectations for this exciting project.”

DiamondWorks and Magma each own a 40% stake in Koidu; the Sierra Leone government holds the remainder.

On the financial front, DiamondWorks has arranged a private placement of up to 14.9 million units for gross proceeds of up to $29 million. Teixeira-controlled Lyndhurst Ltd., the company’s largest shareholder, has agreed to take up around 6.7 million units at $1.95 apiece. The remaining units will be issued to arm’s length institutional investors at $1.80 per unit.

Each unit includes one share plus half a share purchase warrant, with a whole warrant good for one share at a price of $2.50 per share for 18 months from the deal’s closing.

As agent for the deal, London-based ODL Securities will receive a cash commission of 7% of total proceeds plus broker’s warrant good for up to 10% of the number of units it places. The borker’s warrants are exercisable at $1.95 per share for two years.

The proceeds will go toward bolstering DiamondWorks’ working capital. The deal is subject to approval by the Toronto Stock Exchange.

DiamondWorks’ shares were trading 8, or nearly 4%, higher at $2.13 in early trading in Toronto on Feb. 10.