Lucara sells stake in African diamond project to Paragon for $8.5m

Lucara sells stake in African diamond project to Paragon for $8.5m

The Mothae diamond project is located in Lesotho, close to Paragon's Lemphane project and the much larger Letseng mine, owned by Gem Diamonds. (Image courtesy of Lucara Diamonds.)

Canada's Lucara Diamond (TSE:LUC) has sold a 75% stake in its Lesotho-based Mothae project to Paragon Diamonds (LON:PRG), in a deal worth US$8.5 million that would allow the UK miner fast-track the mine into production.

Paragon already owns a project in the African country, Lemphane, located close to the larger Letseng mine owned by Gem Diamonds.

The company said Tuesday that after the successful acquisition of Mothae, which contains an indicated and inferred 39 million tonnes of ore at 2.7 carats per hundred tonnes, it has pushed back initial production for Lemphane into the third quarter. The plan is to develop both projects simultaneously, with significant economies of scale.

Expected revenues from the first full year of production are put at $36 million, while the cost of bringing Mothae online is put at around $8 million.

The figure, as well as the acquisition cost, will be financed by Paragon’s Dubai backer, International Triangle General Trading (ITGT), which has already committed to a $12 million debt and equity package to start up Letseng.

It means the development capital has been secured at no additional dilution to existing investors.

Various independent producers, including Lucara, Gem and Petra, have made noise in recent years for their incursion in the diamond market and, sometimes, for their record-breaking gem discoveries. However, worldwide production continues to be controlled by giants De Beers and Alrosa.