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African Diamonds partner Lucara Diamond ups in situ value of AK6 to at least $2.2 billion

A revised resource estimate for African Diamonds (AIM:AFD) AK6 kimberlite in Botswana’s prolific Orapa district certainly caught the attention of shareholders this morning. 

The revised report, submitted last night in Canada by African Diamonds new partner on the project, Lucara Diamond Corp (TSX-V: LUC), reported 51 million tonnes at an average grade of 22 carats per hundred tonnes (cpht) - 11.2 million carats - and a further inferred resource of 20 million tonnes at 19 cpht.   Most encouraging of all, the average modelled diamond value has jumped from $151 per carat to $194 per carat, giving an in situ value of the indicated resource of $2.2 billion.

The update was conducted as part of an ongoing feasibility study being completed by Lucara on AK6 which is expected to be completed in May 2010.

African Diamonds and De Beers initially developed the project, but in November 2009 the diamond behemoth opted to sell its stake to Lucara, a company backed by the highly regarded Lundin Group, a US$10 billion group of 12 oil and mining companies, including African gold producer Red Back Mining (TSX:RBI) and base metals miner Lundin Mining (TSX:LUN)

It is worth noting (again) that a mining license was awarded to the AK6 project in October 2008, and the Orapa district boasts excellent infrastructure and access to power, water, skilled manpower and paved roads, removing many of the hurdles that mine developers face in many other parts of the world.

Previous studies commissioned by African Diamonds have estimated Capex of US$63 million to establish the mine at 2 million tonnes a year output, which will produce over 400,000 carats at the modelled grade of 22 carats cpht. According to African Diamonds, a further US$25 million in capital expenditure could double the output.

Analyst Joe Lunn at FinnCap highlighted in his morning note that the updated carat value was positive news, and would also allow the open pit depth to be increased by 17% to 336 meters. FinnCap held its current valuation on African Diamonds at 108 pence per share.

Shares in African Diamonds tacked on 7% this morning, valuing the company at approximately £35 million.

Disclosure: The author holds no positions in the company