AIM-listed diamond miner BlueRock Diamonds has conditionally raised £1.2 million to fast-track its growth plans and to strengthen its current balance sheet.
The company raised £1.235 million via an oversubscribed placing and subscription of 3.52 million new ordinary shares at a price of 35 pence per share.
At the same time, three of the company’s directors – Michael Houston, David Facey and Gus Simbanegavi – have indicated their intention to subscribe for a further £5 000 each on the same terms as the placing via the issue of a further 42 855 shares, subject to approval by the board.
The company, which owns and operates the Kareevlei diamond mine in the Kimberley region of South Africa, announced its expansion plans in February to increase production volume to 700 000 tpa. The expansion plans, which were already well underway when the COVID-19 pandemic began, were halted when the South African Government announced a lockdown in March 2020 and the company put Kareevlei into care and maintenance.
The plant remained closed for six weeks and there were no diamond sales for three months. The estimated direct cash cost of the pandemic has been approximately £550 000 not including the longer-term opportunity cost of weakening diamond prices.
Although this is a significant cost, the company currently has cash and near cash of approximately £1.2 million.
The proceeds of the fund raising will increase the group’s cash balance to approximately £2.4 million. The combined funds will be used to complete the enhanced expansion plan which is expected to be completed in two phases:
Phase 1, to be completed by the end of 2020, is focused on resource optimisation to increase the volume to a run rate of 1 Mtpa and carats to steady state 45 000 a year. This will be achieved by operating the existing plant alongside the Numovista plant acquired early this year and the addition of a larger front-end crusher to handle the increased volumes.
Phase 2, to be completed by the end of H2, 2021, is focused on profitability optimisation. This will see the mine connected to the national grid and substantially reduce use of the expensive diesel generators. The introduction of a re-crushing circuit will result in an expected increase in recovery from 70% to approximately 90% (additional 1 to 1.5 cpht recovered). This process enhances the carat production at a nominal cost.
Costs per carat are expected to fall from the Q4, 2019 figure of US$250 per carat to US$190 per carat once both phases of expansion are complete. These are largely driven by the impact of the economies of scale on the fixed cost element of the business and the lower power costs.
“I had hoped to be confirming that the expansion plans announced in February of this year had progressed in line with our earlier plans and that we were on track to be running at a run rate of 700 000 tpa during the third quarter.
“Unfortunately, the global pandemic halted these plans and forced us to rethink the way in which we operate,” says BlueRock executive chairman Mike Houston.
“Over the last few months we have taken a number of important steps to protect the business in what is an extremely challenging environment: we have brought production safely back on line; developed a new marketing channel; put in place a pre-sales financing structure; completed the combining of KV1 and KV2 into KV Main Pit; and further modified the current plant resulting in improved production throughput. In addition, management re-looked at the expansion plan and in line with maximising on the resource utilisation, increased the proposed production from 700 000 t (32 000 carats) to 1 Mt (45 000 carats) per annum.
“The mining to date has illustrated the potential for the overall resource to be increased both in area and depth and we anticipate announcing an updated resource statement in Q3 2020.
“We have stressed to shareholders the importance of getting the economies of scale right; the funds raised today will enable us to continue with this strategy to increase annual production volumes and to implement cost cutting and efficiency measures in order to optimise the profitability of the company,” Houston concludes.