Lucara Builds On African Assets

Lucara Diamond (LUC-V) is acquiring a big stake in the AK6 diamond project in Botswana.

On Nov. 10, the Vancouverbased company announced it will pay De Beers $49 million for its 70.3% interest in Boteti Exploration, which holds a 100% interest in AK6.

The remaining 28.3% interest in the project is held by AIM-listed African Diamonds (AFCDF-O, AFD-L) for now, but African Diamonds can increase its stake by 10.3% by paying Lucara US$7 million plus interest at 8% per year.

AK6 is an advanced diamond development project in Botswana’s Orapa district. The country is the world’s largest diamond producer.

A mining licence was granted last October for the project, which is slated to become an open-pit diamond mine. If all goes well, AK6 will be in production in roughly two years’ time.

To get to that stage, however, the current feasibility study must be updated first. Lucara says it expects that to be done by the first half of 2010.

Once the updated feasibility is completed, the mine should be in production within 18 months — although further approvals from the government will be required. The government also has to approve the sale of De Beers’ interest to Lucara.

Additionally, Lucara plans to complete a National Instrument 43-101 technical report on the property within four months.

AK6 is made up of three intersecting pipe-shaped lobes of diamond- bearing kimberlite, with similar geology to nearby diamond mines.

Lucara reports that infrastructure near the site is solid, with paved roads, water and power from the national grid.

The deal solidifies Lucara’s position as a growing diamond player in Africa as the company also has the Mothae project in Lesotho going into preproduction test-mining next year.

Lucara is financing the deal with debt, but it won’t have to deal with any bankers to get it. Instead, the company is turning to one of its own deep-pocketed insiders. While the name of the insider was not released, the person in question is loaning the company the full $49 million.

For that effort, the insider will get 12.1 million shares of Lucara, of which 5.2 million will be subject to shareholder approval.

The deal also calls for Lucara to make a US$2-million convertible loan to African Diamonds to fund its portion of the updated feasibility study and working capital.