Botswana Diamonds (LON:BOD) has signed a contract with Palaeo Minerals covering full-scale mining activity at the Thorny River project in South Africa, which the company believes will become its first operating mine.
The agreement, which sees Botswana Diamonds handing over control to the contractor, will allow the company to self-fund the project from bulk sampling through to mine development, it said in a statement.
In return, Botswana Diamonds - through its partner Vutomi - will receive a 12% net royalty revenue and a further 8% to cover state mineral royalties, sales and security expenses. The balance of the project will be owned by the operator, Palaeo Minerals. Indicated net royalties could be between $2 million and $7 million a year.
Company believes the Thorny River project will become its first operating diamond mine.A processing target of up to 30,000 tonnes of kimberlite per month has been planned and diamonds will be recovered using a processing facility at a nearby diamond mine. Drilling on the project is set to begin in 2019.
"We are confident that Thorny River could be the first diamond producing project for Botswana Diamonds," Botswana Diamonds chairman John Teeling said. "We anticipate the award of the necessary regulatory approvals in anticipation of revenue being generated during the course of 2019," he noted.
Investors reacted negatively to the news. Shares in the company fell more than 6% to 0.75 pence at 10:15 am London time.
Botswana, which was overtaken by Russia as the world's top diamond producing country in 2014, is grappling with aging mines, as well as power and water shortages.
Still, the nation is home to some of the world's most prolific diamond mines, including Lucara Diamond's (TSX:LUC) Karowe operation, where the now-famous Lesedi la Rona, the second-largest gem-quality diamond to ever be found, was unearthed in 2016.
Besides diamonds, the country also produces nickel, copper, coal and iron ore.