Operations
The company is not currently producing rough diamonds, which has suspended production from its satellite plant operations in early December 2008 because of the sharp fall in prices available for rough diamonds following the world economic situation. Prices fell by around 50% from October 2008 to the first quarter of calendar year 2009, since then prices have improved considerably and is reported to be near previously prevailing levels, although the market indicate that there could be some short-term price turbulence. In the medium and long term for rough diamond prices are likely to be robust in light of anticipated supply shortages.
Funding and development
The company arranged £ 3.9 million of Finance in November 2009 and a further £ 6,000,000 in January 2010 before costs to provide the flexibility to restart production and invest in facilities at Liqhobong and to progress some key parts of the DFS.Part of this funding be paid to it for periods of 24 and 18 months under equity swap arrangements whereby the amounts to be received by the Company will vary according to its share price.
The company has been to assess possibilities for running Satellite Systems with diesel generated power before connecting to the grid electricity supply planned in 2011. A further review is ongoing to assess the most economical ways to expand production to potentially 1.4 million carats a year in order to limit equity dilution as much as possible. This review will cover trade off studies to assess the timing and impact of further expansion of satellite systems and the possible gradual construction of the new main pipe plant and financing options for the main pipeline Project.
Powerline event
The successful development of Liqhobong main pipe will be completely dependent on supply of grid electrical power from an expansion of the Lesotho electricity grid.A Memorandum of Understanding (“MOU”) between its subsidiary, Liqhobong Mining Development Company (“LMDC”), Lesotho Electricity Company (“LEC”), the Government of the Kingdom of Lesotho (“GoL”) and Standard Lesotho Bank in financing the construction of an electric power line to the company’s mine in Liqhobong was signed and published on 17 August 2009.
MOU considering the funds will be lent by the bank to LEC to fund construction of the power line from LEC’s sub-station in Ha Lejon, which is about 30 kilometers from Liqhobong. In addition, LEC and GoL contribute funds towards the cost of the project and the GoL has agreed to give guarantee to the bank in connection with debt financing. LMDC will fund the servicing of the loan and repayment on terms that are expected to be adopted shortly.
The technical specifications for power line, together with the EIA studies have been completed in readiness to start construction once financing is in place. It is envisaged that the loan documentation will be completed soon between the parties and that construction will begin in the third quarter of 2010, which should allow grid electricity to be connected to the mine by the end of 2011.
Corporate
In October 2009 the Company entered into a period of exclusivity with a mining company to facilitate review of Liqhobong assets for an investment in Liqhobong project. The period of exclusivity was extended until 15 December 2009, when it ended so that it could explore further the interest on corporate level received from other organizations to determine whether they would rather serve the development of the main pipe and its shareholders.
On 26 January 2010 the Company announced that it had signed a non-binding Memorandum of Understanding (“MOU”) with the mining company to develop its Liqhobong assets in Lesotho. The principal terms of the MOU was that my company would finance and operate the resumption of production at Liqhobong and the remaining work on the DFS and would have an option to buy 51% of the Company’s interest in the main pipe in return for funding 80% of the cost developing Liqhobong to production of more than one million carats a year. The mining company estimated that the cost of building new facilities will be approximately $ 80 million and on this basis would invest $ 64 million for 51% of the Company’s interest in Liqhobong, currently 75% of the project, the other 25% owned by Gol.
The Board announced on 10 February 2010 that it is in discussions which may or may not lead to an offer being made for the entire issued and to be issued share capital of Kopane. Discussions are at a preliminary stage and there can be no assurance that an offer will be made for Kopane or as to the terms on which any offer would be made. Under these circumstances, discussions about joint development of its Liqhobong kimberlite asset, according to the non-binding MOU announced on 26 January 2010, was put on hold.
Outlook
As stated in the trading update announcement on 15 December 2009, the Company believes that the outlook for 2010 to be very positive. The market for rough diamonds has substantially recovered from falls in late 2008 and early 2009, and progress towards funding and commencement of construction of a power line to connect Liqhobong to the Lesotho electricity grid in 2011.