Paragon's high-grade promise

Paragon has agreed to buy a 75 per cent stake in the Mothae diamond mine in Lesotho from Lucara for $8.5m (£5.7m), as the latter miner has opted to focus on its flagship Karowe mine in Botswana. Mothae is adjacent to Gem Diamonds' (GEM) highly lucrative Letseng mine and Paragon's existing Lemphane project. Based on early appraisal work at Mothae has an indicated-and-inferred mineral resource estimated at 39m tonnes, to go with the 48m tonnes currently undergoing evaluation at Lemphane.

Importantly, Mothae contains large, high-value diamonds. The company revealed that an extensive sampling programme recovered 14 diamonds ranging between 10.6 and 56.5 carats, with an average per carat range of $5,482-$41,869. In all, 21,700 carats were recovered from 0.6 tonnes, at sampled grades of 2.1 to 5.1 carats per hundred tonnes (cpht). It's estimated that 15 per cent of the diamonds at Mothae will be larger than 10 carats and 2 per cent over 100 carats. There are obviously no guarantees, but recovering high-grade stones at the upper-end of this range is potentially transformative for junior miners. At the tail-end of 2014, Gem Diamonds sold a 198-carat white diamond recovered from its Lesotho mine for $10.6m.

Paragon needs around $5m to refurbish Mothae's existing processing plant, along with $3m in working capital to bring Mothae into first-phase production of 0.75m tonnes per year. With $28m financing in place from International Triangle General Trading, management reckons it can bring both Lemphane and Mothae into production during the latter part of this year.

Within two years it's anticipated that processing at Mothae will step-up to 2m tonnes per year through a further injection of $50m - again through institutional debt finance. The initial phase of production from both Mothae and Lemphane is expected to generate around $36m in annual revenues, while it's thought that Mothae alone could underpin annual sales of $60m over a minimum of 12 years during the second phase of production.