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DMC - DiamondCorp plc - Loan Funding Term Sheet with IDC

Release Date: 21/05/2012 08:00
Code(s): DMC
Wrap Text

DMC - DiamondCorp plc - Loan Funding Term Sheet with IDC DiamondCorp plc JSE share code: DMC AIM share code: DCP ISIN: GB00B183ZC46 (Incorporated in England and Wales) (Registration number 05400982) (SA company registration number 2007/031444/10) (`DiamondCorp` or `the Company`) Loan Funding Term Sheet with IDC DiamondCorp plc, the African diamond mine development and exploration company, is pleased to announce that it`s 74%-owned subsidiary, Lace Diamond Mines (Proprietary) Limited has entered into a loan funding term sheet with the Industrial Development Corporation of South Africa Limited ("IDC"). Under the terms of the loan funding term sheet, IDC has agreed to make a loan available to Lace Diamond Mines (Proprietary) Limited to the value of R280 million (approximately $33.6 million), subject to the satisfactory conclusion of due diligence and certain other conditions precedent. Commenting on the loan funding term sheet, DiamondCorp CEO, Paul Loudon said: "The key driver for management in seeking funding for the Lace mine development has been to find the optimum financing method which is the least dilutive for shareholders of the Company. Therefore, we are delighted that we and our Black Economic Empowerment ("BEE") partners have been able to agree in principle a debt financing proposal from the IDC to provide over 98% of the estimated capital required to establish a block cave development on the 47 level at the Lace mine. This is a significant milestone in DiamondCorp`s transition from developer to producer and we welcome the support of the IDC in funding this potentially long-life diamond mine in the Free State Province." On 18th May, DiamondCorp`s 74%-owned subsidiary, Lace Diamond Mines (Proprietary) Limited (the "Borrower") entered into a detailed loan funding term sheet, pursuant to which the main terms of the proposed loan funding were agreed in principle. It is intended that the loan funding term sheet will form the basis of the final loan financing agreement. Under the terms of the loan funding term sheet, IDC (the "Lender") has agreed to provide a loan facility to the Borrower to the value of R280 million (approximately $33.6 million) for the purpose of underground development and purchase of mining equipment at the Lace mine. The loan will be secured over the assets of the Borrower and will be guaranteed by the Company. The term of the loan is expected to be 7 years. It is anticipated that the loan will attract an interest rate of 2% over the South African Prime Rate (which is currently 9%), such interest to be capitalised for the first two years from the draw down date and payable semi-annually in arrears thereafter. There will also be a two year moratorium on loan repayments. The provision of the loan is subject to certain conditions precedent, including the completion of satisfactory due diligence by the Lender and unconditional approval by the Lender`s executive committee and/or board of directors. Subject to satisfactory completion of due diligence and satisfaction of the conditions precedent, including approval for the upgrade of the electricity supply to the mine by Eskom, DiamondCorp anticipates that the loan financing agreement will be finalised by the end of July 2012. The loan financing agreement will include representations and warranties from the Borrower that are usual for transactions of this nature. Management`s latest estimate for the total cost of development at Lace is R384 million but with revenue expected from diamond sales after 18 months, the peak funding requirement is forecast to be R285 million. BACKGROUND - LACE MINE, FREE STATE PROVINCE, SOUTH AFRICA The Lace diamond mine is located 25km northwest of the town of Kroonstad in the Free State Province of South Africa. The mine operated from 1896 to 1931, and according to mine records produced approximately 700,000 carats of diamonds from 4.5 million tonnes of kimberlite at a recovered grade of 16 carats per hundred tones(" cpht"). The production was reported to be high quality white diamonds, with the biggest stones recorded historically being 122 and 86 carats. The kimberlite was mined by open pit to approximately 100m depth, then by underground methods to 240m depth. In the 1920s, higher grade kimberlite was encountered as the workings went deeper and a decision was taken to develop a 6.5m x 2.5m vertical shaft to the 36 level (360m) and pre-develop the kimberlite between the 24 level and the 33 level with 2m x 2m development drives. The vertical shaft and development drives were completed in 1930, a year before the mine closed when diamond prices collapsed in the Great Depression. The mine was then kept dewatered until 1939 when it was acquired by De Beers Consolidated Mines Limited. De Beers never operated the mine but instead let it flood, thereby sterilising the resource as part of their control of the supply side of the diamond industry. Following progressive changes to the mining law in South Africa, DiamondCorp acquired the property from the Christiaan Potgieter Trust in 2006 in conjunction with BEE partners Shanduka Resources and Sphere Investments. In 2007, DiamondCorp constructed a 1.2 million tonne per annum dense medium separation plant at Lace and commenced treatment of approximately 3.4 million tonnes of kimberlite tailings from the mining activities which took place between 1896 and 1931. Approximately 1.1 million tonnes of tailings were treated at a recovered grade of 8 cpht. At the same time, a 4.5m x 4.5m decline was commenced to access and bulk test the kimberlite below the previous mining levels. Decline development and tailings re-treatment ceased at the end of 2008 when diamond prices fell by 50 per cent during the credit crisis. Decline development resumed in May 2009 and reached the kimberlite sampling level 25 in May 2011. Successful bulk testing on this level which confirmed high quality white diamonds was completed in October 2011, and an Independent Engineering Report by SRK Consulting supporting the development of a block cave on the 47 level (470m) was published in March 2012. AIM Nomad: Fairfax I.S. plc AIM Brokers: Fairfax I.S. plc, Ocean Equities Ltd JSE Sponsor: PSG Capital (Pty) Limited DiamondCorp plc - Paul Loudon +27 56 212 2308/ Euan Worthington +44 775 3862 097 Fairfax I.S. plc - Ewan Leggat/Laura Littley +44 207 598 5368 Ocean Equities Ltd - Guy Wilkes +44 207 786 4370 PSG Capital (Pty) Ltd - John-Paul Dicks +27 21 887 9602 Russell & Associates - Charmane Russell +27 11 880 3924 Date: 21/05/2012 08:00:03 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. 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