DiamondCorp (LON:DCP, JSE:DMC) hailed continuing solid progress at its key Lace mine in South Africa and says it plans to raise £10-12 million this year to take the mine into full production.

In its annual report to shareholders the company says that following a year of “great progress” at Lace Mine the next 12 months should see it efforts over the project bear fruit.

Initial recoveries at Lace remain positive, and management is confident its base case revenue forecast of approximately $30/tonne will be met, comprising a grade of 24 carats per hundred tonnes (“cpht”) and carat value of $120 per carat.

Since its year end, the company has carried out a detailed life of mine review on Lace.

Among the findings is that while the introduction of conveyors has resulted in an increase in development costs, the move has also provided significant savings on life of mine operating costs given the anticipated increases in South African electricity prices in the years ahead. Their introduction has had a minimal impact on the development schedule.

The review also indicates that diamond grade is forecast to rise to 40 cpht after the first eight years of mining when the deeper, higher grade kimberlite is mined.

Diamond revenue, meanwhile, is estimated to be between R196 (£17.50) and R261 (£23.30) per tonne. Operating costs are estimated to be R105 (£9.38) per tonne, resulting in an initial operating margin of between 46% and 60%.

The company says that if bulk sampling at the mine is positive in terms of grade and carat value, it will need to undertake a significant capital raising in order to complete full scale mine development.

“The sooner we can raise our development capital after the bulk test, the quicker we will be able to add value for shareholders by completing the full scale mine development at Lace” it adds.

Earlier this month it raised £3.48m gross at 13p to fund its exploration programme in Botswana and general working capital.

To take Lace into full production, and to retire the $1.85 million of equipment debt on its balance sheet, it will this year seek to raise a further £10-12m.

With these funds, the total DiamondCorp will have spent on bringing Lace into full production is expected to be around £30m – a “very low number” for a 1.2mtpa operation, it says.

More broadly, the diamond pricing backdrop is highly encouraging for the company. The diamond market has made a “staggering recovery” from the depressed levels of mid-2009 thanks to demand from increasingly affluent Chinese and Indian consumers.

In February 2011, the company sold a package of 1,321 carats recovered from the Lace tailings for an average of US$94/ct which compared to the highest price it received before the crash of $55/ct in September 2008 and the lowest of $33/ct it received from a small sale in May 2009.

DamondCorp adds: “The outlook is for demand to remain strong in Asia while a slow recovery in the US economy should also boost consumption, which is important as the US remains the largest diamond market accounting for some 40% of offtake.”

The company’s exploration activities in Botswana, meanwhile, are continuing apace. There, it has a 77.5% joint venture interest in Prospecting Licence PL/71 in Botswana, immediately south of De Beers’ Jwaneng mine, the richest diamond mine in the world by value.

DiamondCorp is “very pleased” that exploration at PL/71 has so far resulted in two diamondiferous kimberlites for mini bulk testing, providing it with a pipeline of promising diamond exploration projects in Botswana.

Looking ahead, the company concludes that while it is under no illusion that there will be hurdles ahead, the “exciting outlook” for diamond prices means it can now look forward to producing revenues and profits from Lace while setting out to sample its two highly promising kimberlite targets in Botswana.