Paragon Diamonds Terms of Mining Lease finalised

RNS Number : 7457A

Obtala Resources Limited

24 February 2014

 

24 February 2014

Obtala Resources Limited

("Obtala" or the "Company")

(AIM: OBT)

Paragon Diamonds Terms of Mining Lease finalised for Lemphane Kimberlite Project, Lesotho

The Board of Obtala Resources Limited, the natural resources investment and development company, announces the following RNS made by Paragon Diamonds Limited this morning:

Obtala Resources Francesco Scolaro - Chairman Simon Rollason - Managing Director www.obtalaresources.com	[phone]
Macquarie Capital (Europe) Limited (Nomad and Broker)
Steve Baldwin	[phone]
Nicholas Harland

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources

24 February 2014

  Paragon Diamonds Limited

('Paragon Diamonds' or the 'Company')

Terms of Mining Lease finalised for Lemphane Kimberlite Project, Lesotho

Paragon Diamonds Limited, the AIM quoted diamond development and production company, is pleased to announce that further to the announcement of 14^th October 2013, its 85% owned Lesotho subsidiary Meso Diamonds has now finalised the terms and conditions of the Mining Lease Agreement with the Government of Lesotho for the mining of the Lemphane Kimberlite Pipe in Lesotho ('Lemphane' or the 'Project'). This will allow the Company to initiate preparations for, and commence, Stage 1 production at Lemphane.

·    Mining Lease granted for initial ten years, renewable for three consecutive ten year periods subject to the terms of the Mines and Minerals Act of 2005.

·    Stage 1 of a two-stage production programme at Lemphane targeting the mining of 500,000 tonnes per annum to recover an anticipated circa 10,000 carats per year at a minimum average value of US$750/ct.

·    Stage 1 production is intended to produce a Maiden Inferred Resource at Lemphane and definitive feasibility study (DFS) for Stage 2 mining.

The Mining Lease Agreement for Lemphane (009/2013) is held by Meso Diamonds which is currently 85% owned by the Company and 15% owned by local Basotho shareholders. Under the terms of the Mining Lease Agreement, the Government of Lesotho will now hold an interest of 20% in the Project, and 10% of the Project interest held by the Government will be free carried with the other 10% to be funded by the Government through its share of Project dividends.  Under the Mining Lease Agreement there are provisions to maintain a 15% local Basotho shareholding in the Project. An initial royalty of 4% will be payable to the Government on production and is subject to review within five years. The Mining Lease Agreement has an initial term of ten years and is renewable in accordance with the Mines & Minerals Act of 2005, for a further three consecutive ten year periods.

Chairman of Paragon Martin Doyle said: "We are delighted that the terms of the Mining Lease for Lemphane have now been finalised. Having previously recovered stones of up to 8.9 carats with values in excess of US$2,400/ct we have already demonstrated Lemphane's potential to yield large high-value diamonds.  We are now advancing our planning for Stage 1 production.  As well as generating significant revenues, Stage 1 production is expected to increase the average value per carat (a consequence of the higher amount of tonnage mined), build on the robust economics already identified and also provide a bankable Mineral Resource. I look forward to providing further updates to shareholders as we look to establish Lemphane as another world class diamond mine in Lesotho."

Operational update

The Project is a six hectare kimberlite pipe located in a prolific diamond producing region of Lesotho.  A 3d geological model for Lemphane was completed in late 2013 based on the interpretation of 1,373 metres of drilling on four drill holes, and resulted in an 80% increase in the overall estimated kimberlite tonnage at Lemphane to 48.6Mt to a depth of 350m.  This increased tonnage is very positive for the project as it has the potential to extend the life of mine by approximately eight years with minimal additional capital expenditure.

A bulk sampling programme carried out by the Company in 2013 established surface grades and resulted in the recovery of large high value diamonds of up to 8.9 carats and US$2,400/ct respectively. In their recent audit report, the MSA Group, the Company's bulk sampling consultants, suggest that due to the likelihood that bulk sampling at depth will be unfeasible, it is expected that an Inferred Mineral Resource classification will be the maximum that can be achieved at Lemphane.  An Inferred Mineral Resource estimate (grade and value at depth) can be established by extrapolating 'statistically robust surface production or trial mining results' as was successfully applied at the Letšeng Mine (Gem Diamonds plc.) and at the Mothae Project (Lucara Diamond Corp.), both of which are located close to Lemphane. 

As well as generating anticipated revenues in excess of US$8M per annum, the Company's Stage 1 production programme at Lemphane, which is due to commence in 2014, will be of sufficient size to lead to a Mineral Resource at the Inferred level.  Stage 1 production will cover a two year period during which time it is intended that 1Mt of kimberlite will be mined and processed for the expected recovery of at least a total of 20,000 carats at an estimated minimum value of US$750 per carat at a provisional 2 mm production cut-off. Based on preliminary size frequency distributions, comparable to the Mothae Kimberlite, the recovery of up to 2,000 carats of "special" stones (i.e. 9.8+ carats) is anticipated, including diamonds of up to 100 carats in size.  The Company remains confident of achieving US$1,500 per carat for Stage 2 production with the expected recovery of significantly larger stones as a direct result of the increase in tonnage processed.

The Company now expects to conclude advanced stage negotiations on the financing of Stage 1. This financing is intended to cover the entire development costs of Stage 1 as well as providing initial working capital.

In accordance with the AIM Rules for Companies, the information in this announcement has been reviewed by Stephen Grimmer PhD., MSc., a qualified geologist with over 25 years diamond exploration experience.

**ENDS**

For further information please visit www.paragondiamonds.com or contact:

Martin Doyle	Paragon Diamonds Limited	[phone]
Simon Retter	Paragon Diamonds Limited	[phone]
Lindsay Mair	Sanlam Securities UK	[phone]
Catherine Miles	Sanlam Securities UK	[phone]
Felicity Edwards	St Brides Media and Finance Ltd	[phone]
Frank Buhagiar	St Brides Media and Finance Ltd	[phone]

Notes

Paragon Diamonds has a pipeline of projects in Lesotho, Botswana and Zambia, the most advanced of which is its Lemphane Kimberlite Pipe Project in Lesotho, located close to the world class Letšeng mine, Lesotho's largest diamond mine. Lemphane is the last known world-class sized kimberlite to be developed in Lesotho.  Among the stones recovered in the Company's 2013 bulk sampling programme were several large high value stones of up 8.9 carats in size and individual diamond values in excess of US$2,400/ct have been achieved, demonstrating the potential for Lemphane to hold large and valuable diamonds.  The first of a two stage production programme is due to commence in 2014 which will further define the resource at Lemphane.  As increased tonnages of kimberlite are processed the proportion of larger diamonds recovered will improve, increasing the average value of diamonds recovered at the project, as was the case at Letšeng.

Stage 1 production will cover a two year period during which 1 Mt of kimberlite will be mined and processed out of the currently estimated 48.6Mt of kimberlite (to 350m depth) at the site, using a 75 tonne per hour processing plant. The Company is targeting 20,000 carats during Stage 1 with an estimated minimum value of US$750 per carat that is expected to generate in excess of US$8M revenues per annum.  Revenues will be reinvested to further develop Lemphane and complete a bankable feasibility study, a 3d geological model and a substantial inferred resource ahead of commencing the Stage 2 production phase.  Stage 2 will see production ramped up to 3Mt/year with peak production expected to hit 65,000 carats per year of high value diamonds. 

 

END

 

 

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