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Cenkos comments on DiamondCorp and its development of the Lace Mine in South Africa

In a report for investors, Cenkos Securities noted that DiamondCorp (AIM: DCP) has constructed and commissioned a highly efficient diamond recovery plant and carried out a significant amount of initial development work at its Lace mine property.

DiamondCorp’s primary asset is its 74% stake in the Lace diamond mine in South Africa and through a recent placing, it raised £7.1 million (£6.6 net) at 7 pence per share to move the project closer to production.

According to the Bankable Feasibility Study, the Lace main pipe contains 33.12 million tonnes of kimberlite in indicated and inferred resources to 855m at an average grade of 40.12 carats per hundred tonnes (cpht), for a contained resource of 13.29 million carats of diamonds.

The broker highlighted that the Lace diamond mine is projected to generate cash-flows of £3m from 2012, rising to approximately £15m from 2015 - assuming annual production of 230,000 carats from 2012 and 400,000 carats by 2015 with a total 25 year mine life.

With a 13% discount rate, Cenkos estimated DiamondCorp’s Net Present Value (NYSE:NPV) at £32m, and the broker noted that, including shareholder loan recovery, and assuming increased production, it has discounted this to £28.7m or 20p per share.

The historic mine plans show that the impact of the near-term development work in the lower levels will create a significant increase in confidence in the resource and cost savings, Cenkos noted. According to the broker, whilst question marks remain whether Lace will be an economic pipe, the old mine plans and recent tenders from the satellite pipe look positive. Accordingly it believes that the Lace Pipe is well positioned for development and produce positive returns as production grows.

Furthermore, Cenkos highlighted that whilst DiamondCorp develops Lace, it also continues to progress its diamond exploration in Botswana in known diamondiferous kimberlites - where so far drilling has produced positive results.

In Botswana, DiamondCorp is earning-into a 77.5% interest in three diamond exploration licences, totalling 109.2 square kilometres and containing nine known kimberlites. Through an agreement with Botswana-based exploration company, Geoperspectives Pty Ltd, DiamondCorp can earn its stake by completing a definitive feasibility study within five years.

The primary exploration target in Botswana is kimberlite J-01, located within the PL071/2007 license, which is approximately 8km southeast of De Beers Jwaneng Mine.

Disclosure: The author holds no positions in the company