China Diamond returns 9,716 carats from 701 iChina Diamond returns 9,716 carats from 701 in November
2004-12-20 05:16 ET - News Release
Mr. Sam Halbouni reports
CHINA DIAMOND CORP. ANNOUNCES NOVEMBER PRODUCTION RESULTS AND INITIATION OF CAPITAL DEVELOPMENT PROGRAM
China Diamond Corp. has released the production results from the 701 Changma diamond mine, its principal mining operation located in Shandong province in the People's Republic of China. In addition, the company has developed and initiated a capital development program at the mine.
November poduction
For the one-month period ending Nov. 25, 2004, the 701 mine produced 9,716 carats, greater than 1.0 millimetre in size, from 13,271 tonnes processed grading 0.73 carat per tonne. A total of 14,699 tonnes were mined from the underground operation. The tonnages mined and processed represent the highest monthly production figures since the beginning of underground operations.
The company has implemented a number of operational improvements that have significantly improved production, grade and carat recovery as evidenced by the record production of diamonds realized thus far in 2004. The company is continuing to make improvements at the mine, with future focus on the processing facility, and the marketing and sales of the diamonds.
701 mine
Development program
As a result of an investigation of the potential of the mine, the company has developed a mine plan with considerable capital investment to modernize the mining and processing facility, with the goal of increasing diamond production and value. In this way, the company plans to maximize the potential of the mine.
The company has developed a mine plan that addresses several critical aspects of the operation, including:
production rate;
diamond recovery;
security;
diamond fragmentation;
diamond marketing and sales; and
operating costs.
First, the development plan includes the installation of a dense medium separator (DMS) and an X-ray sorter, along with modifications to the current process flow sheet that will: i) improve diamond recovery; ii) increase production rate; iii) provide better security in a closed system; and iv) reduce diamond fragmentation. Cumulatively, these improvements will increase overall diamond value and profitability of the mine.
Second, the company will be injecting working capital into the mine, thus providing an opportunity to optimize the diamond parcel size for marketing and sales, and providing sufficient time to find buyers on the world market. This will enable the mine to achieve the best possible value for the diamond production.
Third, the planned development program will result in an increase in production of approximately 200,000 tonnes per year, or approximately 155,000 carats per year (greater than one-millimetre diamonds). The geometry of the kimberlite pipes, measuring approximately 100 metres by 50 metres in plan view, supports this increase in production rate. This provides the mine the opportunity to capitalize on the economy of scale from a larger production rate, resulting in improved productivity and lower operating costs.
As part of this capital injection and increased production at the mine, the company has commenced the extension of the main decline from the 110 level to the minus-40 level (150 vertical metres). This part of the program is anticipated to be completed by the end of May, 2005. As a result, ore production is estimated to be reduced to approximately 6,000 tonnes per month during this period. However, mining will occur primarily in the higher-grade area of the small pipe, thus minimizing the reduction in diamond production. The company is currently investigating alternatives to expedite the development of the decline.
Capital costs and schedule
The planned capital development totals $3.3-million (U.S.) over the next three years that consists of:
2005: $1.4-million (U.S.) for the procurement and installation of DMS and X-ray sorter, modifications to the current process facility, underground development, and working capital;
2006: $1.5-million (U.S.) for underground development that will be required to support the planned increased production rate; and
2007: $400,000 (U.S.) for underground development.
Over the past six months, the company has been actively exploring various financing options for the planned capital improvements. The realization of the planned capital improvements at the mine are contingent upon the company's ability to raise the required financing.
Diamond valuation
The company has spent considerable effort during 2004 to ascertain a realistic value of the diamonds from the 701 mine. Diamond sales for 2004 have varied considerably in price related to a number of factors, including where the diamonds were mined in the deposit, how large of a parcel of diamonds were sold, diamond buyer etc. However, the company and its various advisors believe that with the planned capital improvements will result in a higher diamond value being realized. The primary reasons for this are summarized below:
By far the biggest potential of increasing the diamond value at the mine is by reducing the amount of fragmentation of the diamonds during processing. The present process includes a combination of aggressive crushing and grinding that is fragmenting many of the larger diamonds. The company's development plan includes the installation of the DMS and X-ray sorter, while modifying the grinding circuit to greatly reduce this fragmentation.
Equally as important at the mine is the present security system. Although security procedures are continually improving, it is the company's belief that only with the installation of a "closed" DMS and X-ray sorter system can the company ensures secured diamond production.
Since the majority of underground capital development being completed at the mine is presently being paid from the operating cash flow, there exists insufficient working capital at the end of each month to stockpile a large parcel of diamonds for sale, in the order of two to three months of production. In addition, the need to sell the diamonds at the end of each month to meet cash flow requirements, does not supply sufficient time to best market the diamonds. The planned injection of working capital by the company during the development program period aims to improve this situation.
Presently, the mine sells the diamonds primarily to Chinese customers, again related to the need for cash flow. However, the company is designing a marketing and sales program that will maximize the diamond value.
Future exploration -- invisible pipe
During 2004, the company confirmed the presence of a third diamondiferous kimberlite pipe at the 701 mine (see Aug. 13, 2004, news in Stockwatch). Given the limited amount of exploration drill data in this area, the company believes there is excellent potential to increase the size of the modelled pipe, and therefore, to add to the current mineral resource base.
The company plans to further explore the invisible pipe in order to define the geometry of the pipe and also to collect a representative bulk sample to better define the diamond size distribution and diamond value prior to estimating the mineral resources in accordance with 43-101 regulations. The bulk sample will be collected from an exploration/development raise from the 110 level to the 120 level that provides access to the pipe. The processing of the bulk sample will be completed once the DMS and X-ray sorter have been installed.
"The company is very pleased with the results of the improvements we have implemented at the mine in 2004, as evidenced by the record production of diamonds," says Mike Michaud, the company's president. "However, the company, and our Chinese joint venture partner, have now developed and initiated a mine plan that will better realize the full potential of the mine through increased production, better diamond recovery, less diamond fragmentation and better security."
The company will be announcing shortly the 2005 programs for the other projects in China, namely the 702, 703 and Huixian projects.
Mr. Michaud is the company's qualified person for this project as defined by NI 43-101 regulations