Diamondcorp Plc LACE MINE PROJECT UPDATE (7880N)

TIDMDCP

RNS Number : 7880N

Diamondcorp Plc

31 July 2014

DiamondCorp plc

AIM share code: DCP & JSE share code: DMC

ISIN: GB00B183ZC46

(Incorporated in England and Wales)

(Registration number 05400982)

(SA company registration number 2007/031444/10)

("DiamondCorp", "the Group" or "the Company")

Lace mine Project update

DiamondCorp, the Southern African diamond development and exploration company, is pleased to provide the following update on the underground development and tailings re-treatment activities at the Lace diamond mine in the Free State province of South Africa.

Highlights

-- The scoping and mine design studies on the Upper K4 ("UK4") Block have been completed and confirm the potential for commercial ramp up from underground kimberlite mining. This can start in H1 2015, six months ahead of schedule, with steady state production of 30,000 tonnes per month achievable by H2 2015.

-- Drilling of the UK4 block is ongoing and to date a mining block totalling approximately 1.5 million tonnes of kimberlite has been outlined which can be mined by bottom up longhole open stoping.

-- Ongoing microdiamond analysis continues to confirm the UK4 Block contains high-grade kimberlite with the potential to yield up to 60 carats per hundred tonnes ("cpht") of ore.

-- A revised budget and schedule has been adopted to fund development of the UK4 Block from within existing project finance facilities.

-- Overall mine development costs to date are averaging R37,051/m against a budget of R35,327/m.

-- Installation of the underground conveyor belt system has commenced and is on schedule to be used for mining of the UK4 Block.

-- Plans to complete an updated resource statement have been rescheduled so that results from a bulk test of kimberlite extracted from the UK4 Block can be incorporated. This is now expected to be issued in Q1 2015.

-- Mining of tailings slowed during the quarter as the surface earth moving fleet was diverted to building an additional surface dam in preparation for early production of kimberlite from underground.

-- Diamond recoveries for the three months ended 30 June 2014 totalled 6,102 carats at a recovered grade of 6.32 cpht.

-- This month a 15.2 carat clean white octahedral diamond was recovered from the tailings, the largest gem diamond the Company has recovered to date.

   --      The de-grit circuit has been commissioned and is operating efficiently.

-- Diamond sales for the six months to 30 June 2104 totalled 14,583 carats at an average price of US$62 per carat.

Underground Development

As we reported last quarter, core drilling of the Bulge area provisionally indicates that the zone is largely lower grade (volcanoclastic) kimberlite, meaning that the total recoverable diamond content is likely to be significantly less than the UK4 Block. Mining of the UK4 Block has the potential to provide significant additional cashflow which would allow the Bulge to be bulk tested and (if warranted) financed from internally generated cashflow, whereas mining of the Bulge alone would require additional project finance. Further, the UK4 Block has the potential to provide high grade ore while the 47 Level Block cave is developed and matures and smoothes out the potential lumpiness in tonnage which can occur in the early stages of block caving. For these reasons, the UK4 Block is considered a high priority development target, and the zone where underground production drilling will now concentrate.

During the three months ending 30 June 2014, the Company's 74%-owned subsidiary Lace Diamond Mines (Pty) Limited (LDM) adopted a revised underground development schedule and budget which aims to bring forward the ramp up of commercial production from underground kimberlite mining by six months into H1 2015. The accelerated mining development will be financed from within existing project finance facilities.

To achieve mine production from the UK4 block, 1,149m of waste development and 880m of kimberlite development is planned over the next 12 months at a budgeted cost of R75 million (R37,000 per metre). Development not common to both mining of the UK4 Block and the 47 level block cave has been rescheduled to occur after mining of the UK4 Block commences.

Overall mine development costs to date are averaging R37,051/m against a budget of R35,327/m. The 5% over spend is largely a result of rising operating costs on the Company's underground mining fleet. The cost increases are a result of increased tyre wear in the final uphill sections of the decline development and higher diesel, repairs and maintenance costs as waste hauling distances increase. The current winter months are also the peak period of the year for electricity tariffs in South Africa.

Management considers there is scope to reverse this cost increase and has instituted operational efficiency projects in mining, maintenance and procurement to improve productivity and reduce costs. However, until any improvements are achieved, a new development budget of R37,000/m has been adopted for the UK4 development going forward which can be accommodated from existing contingencies.

Approximately 55,000 tonnes of kimberlite will be mined as part of the UK4 development which will be processed in batches in a controlled bulk test supervised by MPH Consulting. The recovered diamonds will be valued and sold as part of the Company's established sales cycle. The resulting grade and carat value will allow for an upgraded SAMREC compliant resource statement to be issued in Q1 2015. Management considers it more meaningful to delay the updated resource statement to incorporate the bulk test results than to issue an interim estimate based on microdiamond analysis alone. Revenue generated from the diamond sales during development and bulk testing will be credited to development costs.

Underground drilling of the UK4 block continued during the quarter, and approximately 600 kg of core samples were submitted for microdiamond analysis. Results received to date continue to confirm that recovered grades of up to 60 cpht can be expected from the K4 kimberlite.

Scoping and mine design studies have been completed based on approximately 1.5 million tonnes to be mined from the block above the 365m level which is in addition to the existing geological resource. The studies recommend bottom up longhole open stoping as the mining method and estimate that steady state production of 30,000 tonnes per month can be achieved by H2 2015, with the potential for this to double after development and conveyor belts for the 47 level block cave are installed past the 365m level. Mining and processing costs at the initial production rate are forecast at R169/t.

The design and detailed drawings for the underground conveyor belt system have been completed under budget. Installation of the conveyor belt is underway and is scheduled to be commissioned in H1 2015 in time for accelerated mining of the UK4 block. The Company has experienced no labour issues and continues to hire the personnel it requires. The labour force at 30 June 2014 totalled 287. Safety remains a major priority for the Company, with the lost time injury frequency rate for the year to date standing at zero.

Tailings retreatment

In the three months to 30 June 2014, a decision was taken to reduce tailings re-treatment processing rates and divert the surface earth moving fleet to building another 150,000 cubic metre surface process water dam. This activity needs to be completed in the dry winter months ahead of rains commencing later in the year.

As a consequence, the plant processed 96,490 tonnes of tailings in the period against a budget of 205,000 tonnes. Pleasingly, diamond recoveries totalled 6,102 carats as recovered grades were 6.32 cpht against a budget of 5 cpht. This month the Company recovered a 15.2 carat clear white octahedral diamond from the dumps (photo to be published on website shortly). This is the largest gem diamond recovered to date from the tailings and demonstrates the plant's efficiency in recovering larger diamonds as well as the smaller size fractions.

The reduced production rate in the last quarter allowed for the de-grit circuit to be installed, which is efficiently removing the fine sand fraction and allowing for approximately 90% of the tailings diamonds to be recovered from 60% of the tonnes previously reporting to the dense media separation plant, thereby reducing operating costs per tonne and improving the stone size average and carat value of the diamonds recovered.

Diamond sales (+1.5 mm) for six months ended 30 June 2014 totalled 14,583 carats for proceeds of $909,611, equating to an average sales price of $62 per carat. At the reduced production rate, the tailings retreatment operation is breaking even and the plant is now operating in the optimal configuration for processing kimberlite from development as this ramps up over the next six months.

Demand for good quality rough diamonds remains relatively strong and prices are 5-10% over the prices achieved in December 2013. The Company is forecasting the market to be steady to modestly higher for the balance of 2014, with potential for price strengthening in 2015 as world economies continue to recover.

Competent Person

Mr. Paul Sobie, P.Geo., President of MPH Consulting Limited, being an Independent Qualified Person and a member in good standing of the Association of Professional Geoscientists of Ontario, Membership # 0374, has reviewed and approved the technical content of this news release.

Contact details:

DiamondCorp plc

Paul Loudon, Chief Executive

Tel: +27 56 216 1300

Euan Worthington, Chairman

Tel: +44 7753 862 097

UK Broker & Nomad

Panmure Gordon (UK) Limited

Dominic Morley/Adam James

Tel: +44 20 7886 2500

JSE Designated Advisor

Sasfin Capital (a division of Sasfin Bank Limited)