Lucara on a roll at Mothae, AK6

With the start of test mining at its Mothae diamond operation in June, and a positive feasibility for the development-stage AK6 joint-venture project released the same month, momentum was already building for Vancouver-based Lucara Diamond (LUC-V) over the summer.

But in October, the African-focused company took that momentum one step further with a friendly takeover bid for its partner at the AK6 diamond project, in Botswana — African Diamonds (AFD-L).

“This acquisition consolidates ownership of our AK6 project and creates a premier diamond developer in Africa,” said Lucara president and CEO William Lamb in a release. “AK6 and Mothae are two exciting new diamond projects coming onstream. We believe strong fundamentals underlie the diamond price going forward and AK6 and Mothae are among the very few projects with production on the near-term horizon.”

The all-share deal will see 0.8 of a Lucara share exchanged for each share of African Diamonds, its 40% partner at AK6.

The offer is valued at $72.3 million based on Lucara’s closing price on Oct. 1 (90¢) and the volume-weighted, 20-day average of African Diamond’s shares on London’s AIM market, for a 12.7% premium. The agreement requires the approval of at least 75% of African Diamonds’ shareholders, as well as regulatory approvals. A vote is expected before the end of the year.

African Diamonds shareholders will also receive one share of a new company for each share held; the new spinout will hold African Diamonds’ other properties outside of AK6.

A feasibility study for the AK6 project released in June indicated that a US$120-million initial investment would generate a net present value (at an 8% discount rate) of US$164 million and a 29% internal rate of return.

The mine life was estimated at 11 years, with operating costs over that period pegged at US$17.20 per tonne.

The study examined a phased production approach designed to reduce upfront capital costs. Under the plan, the plant would start at a throughput rate of 2.5 million tonnes per year, and increase to 4 million tonnes per year after four years. Contract mining would also be employed.

Probable reserves at AK6 stand at 36.2 million tonnes containing 6.3 million carats. The reserves are contained in an open pit design that would be mined up to 324 metres depth.

Project engineering work started in July, and production is anticipated to begin at AK6 in 2012.

The AK6 interests are held indirectly, through the Boteti Exploration JV, and Lucara originally bought a 70.3% interest in the project from De Beers in 2009. African Diamonds upped its interest to 40% from 29% in April for £4.8 million, as per an agreement with Lucara.

In other Lucara news, the company announced that test mining had begun at its 75%-owned Mothae mine, in Lesotho, in June. During the first week of production, the company recovered a 53.5-carat, white Type IIA diamond.

In a statement, Lamb said that sampling work had indicated that there were large diamonds at Mothae, but because of the limited amount of material the bulk-sample plant could process, those diamonds were being broken.

“As a single stone, this diamond is more than twice the size of any previous diamond recovered from Mothae,” he said. “Management views this as early confirmation of our technical assessment of Mothae’s potential and the operational approach we have taken to advance this exciting project.”

The test mining program at Mothae will sample and process up to 720,000 tonnes over 18-24 months. Lucara expects that the mine will produce about 1,000 carats of diamonds per month. A 100,000-tonne bulk sample in 2009 returned a dry sample grade of 4.7 carats per hundred tonnes and confirmed the presence of both very high-value diamonds and a very coarse size distribution.

The government of Lesotho holds 25% of Mothae.

At presstime, Lucara shares traded at 85¢ in a 52-week range of 65¢-$1.20. In October, before the African Diamonds acquisition, the Lundin Group company had 222 million shares outstanding.