Etruscan Resources to Double Diamond Production

Etruscan Resources Inc. (ETRUF.PK) owns 53.6% of Etruscan Diamonds Ltd. [ED]. ED has acquired the remaining 50% of the Tirisano Diamond Mine, providing complete ownership of a facility with production capacity of 50,000 m³ per month. ED was nearing completion of a separate pilot project on the adjacent Hartbeestlaagte Property for completion of a resource upgrade with capacity of 50,000 m³ per month. ED will now install this facility at the Tirisano site as a second circuit. The acquisition doubles previously estimated capacity. With additional processing capabilities at Tirisano, ED management sees potential to optimize production at about 100,000 m³ per month. We see initiating production as an early catalyst for several potentially positive events for Etruscan Resources, Inc.

Source: Etruscan

The acquisition of the Tirisano Diamond Mine with the Nooitgedacht property will be consolidated with ED’s Hartbeestlaagte and Zwartrand properties into what is now referred to the “Blue Gum Project.” Currently the Hartbeestlaagte property has a NI 43-101 compliant Inferred resource of 16.2 million m³ of diamondiferous gravels, containing 3.18 carats per hundred m³ and yielding about 515,000 carats. The Nooitgedacht property (Tirisano Mine Project) has NI 43-101 compliant Inferred resources of 12.3 million m³ at 2.8 carats per hundred m³ containing about 345,000 carats. ED had planned to begin production at Hartbeestlaagte and complete a pre-feasibility study to upgrade the Inferred resource to Indicated status. With the consolidation of the Blue Gum Project, the study will be expanded to include the Tirisano facility and resource.

An earlier technical report estimated average sales at the Hartbeestlaagte property with a value of $400 per carat. The Tirisano Diamond Mine realized an average of $489 per carat from operations from 2003 to 2005, increasing to $566 per carat in its last year of operation. This would suggest an in-situ value of the combined deposits to total close to $350 million at $400 per carat and $430 million at $500 per carat. At the potential combined annual processing capacity of 1.2 million m³, the combined resources of 28.5 million as presently identified would have a mine life of over 23 years. We assume production at this level would generate revenues of $18 million with a profit of roughly $6 million per year.

ED anticipates that the combined production at 100,000 m³ per month will help accelerate completion of the pre-feasibility study by the Spring of 2008. Their goal of the feasibility is to make possible the second phase of development, which will include an initial public offering (.pdf) and a new plant with processing capacity of 260,000 m³ per month. While the potential increase in production is significant relative to past production results at Tirisano, ED’s hypothesis is that diamonds deposited are concentrated in sinkholes rather than being limited to streambeds as previously thought. This may lead to development of several concentrated deeper targets rather than chasing shallow deposits along the surface. As seen in Figure No. 2, the blue line represents the pit outline at Tirisano cut into deeper, higher grade gravels in the center, valued at $566 per carat. These were the latest gravels extracted prior to the project being placed on care and maintenance, and the highest to date. This suggests that the potential for improved operations at Tirisano may be realized beyond prior operations and ahead of the previously established resource.

Source: Etruscan

We see several benefits by initiating production at Blue Gum at a rate of 100,000 m³ per month. It would appear that the project would soon become profitable and generate cash flow for accelerating exploration and development. The data gathered for the pre-feasibility should upgrade Inferred resources to an Indicated classification. In addition, additional data from operations should lead to a substantial addition and increase in the current Inferred resource. Also, there would appear to be an immediate opportunity to develop other deposits and targets at Blue Gum, including the Hartbeestlaagte and Zwartrand properties. If successful at Tirisano, the company sees good opportunity to reproduce similar operations at other targets in permitted areas, as well as throughout the district. Any of these results should offer support for shares of Etruscan Resources Inc. While ED is at some risk of a rush to stake properties not included under its permits, we believe they have tied up key areas and hold the best data on the area to increase permitting should exploration activity increase.

ED holds two mining permits, 17 prospecting permits, and applications for an additional five permits, which is roughly 10% of the 5,000 km² Ventersdorp Alluvial Diamond District. The district is approximately 150 km west of Johannesburg, South Africa. Management reports the district produced 667,000 carats between 1926 and 1984. The potential exists for ED to expand production significantly within one of the world’s greatest diamond producing areas. With successful completion of an initial public offering and production experience, Etruscan Resources Inc. will have effectively brought to market and monetized one of its hidden assets. We reiterate our Strong Buy rating of Etruscan Resources, Inc.

Disclosure: The author is long ETRUF.PK and an affiliate of the author’s employer provides corporate advisory services to ETRUF.PK.