Diamond & Specialty Minerals Summary Aug 30 Will PurcellTerry Tucker's
Tango Mining Ltd. (
TGV), unchanged at eight cents on 5.67 million shares, is still trying to close its purchase of the BK-11 diamond mine in Botswana from Firestone Diamonds Ltd. Firestone has granted Tango another extension to give it time to raise the $8-million (U.S.) purchase price. Mr. Tucker, Tango's president and chief executive officer, has arranged a $10-million (U.S.) loan with a number of lenders to cover the cost and provide Tango with a bit of working capital. The loan will pay interest at 12 per cent and will be payable on demand, or one year after closing. In addition, the lenders will also receive the maximum number of shares allowed, which today would be about 28.77 million, worth $2.3-million.
In March, Tango had arranged a $30-million (U.S.) loan with Vanderbilt Commercial Lending Inc. That loan was to bear interest at the greater of 13 per cent per annum or 975 basis points above the Wall Street Journal prime rate during its five-year term. Vanderbilt would also hold a first lien on the BK-11 mine and Tango's interest in the Kwena Group. Mr. Tucker says the loan, which has not made it past the proposal stage in the past five months, "has not been completed to date," but he says nothing about what the problem might be.
Convincing lenders that BK-11 is a worthwhile risk could be one of the challenges. Firestone spent about $45-million (U.S.) six years ago to get the deposit into production, based on a plan to produce about 80,000 carats per year over a seven-year period. Tango's preliminary economic assessment, completed last year, put the value of the BK-11 diamonds at $260 (U.S.) per carat, not far off the $300 (U.S.) per carat that Lucara Diamond Corp. (LUC: $4.17) estimated for its Karowe mine at the feasibility stage. (In production, Karowe has been coming close to doubling that value, thanks to a few thousand carats of large and exceptional diamonds that come from Karowe each year.)
BK-11 averages just 0.063 carat per tonne, compared with 0.16 carat per tonne at Karowe, so maximizing both the grade and value will be critical to BK-11's fate. Firestone ran the mine for several months but abruptly closed it in 2012 because of the processing plant's "inability to liberate diamonds." Firestone had a plan to rectify that problem: installing additional circuits to boost the efficiency of the plant. It also planned to connect the mine to the existing power grid. Firestone never acted on its plans, mainly because rough diamond prices fell gradually but relentlessly before (one hopes) bottoming late last year. Mr. Tucker has not said how Tango plans to resurrect BK-11 and turn a profit, but his plan probably will include Firestone's main recommendations. As well, he is probably hoping BK-11 contains some of the large and valuable gems that make Karowe so profitable.