AIM newcomer DiamondCorp is expanding fast by acquiring a £30 million option on fellow South African gem producer Sonop.

DiamondCorp, run by chief executive Paul Loudon and chaired by former City mining guru Euan Worthington, has taken an option to buy Sonop, South Africa’s largest private alluvial diamond mining company, by March 2008 for £30 million in cash and shares from Christiaan Potgeiter. He is the local mining figure who sold DiamondCorp its present Lace gem-mining project and will hold some 20 per cent of the enlarged group.

For DiamondCorp, which estimates its Lace property already has a 14 million carat gem resource potentially worth £8.5 billion, the chief attraction of Sonop is its Elsiedrift alluvial diamond project on the Orange River. This contains large stones, worth an average US$1,700 (£850) a carat, and has an estimated ten-year mine life.

Provided Elsiedrift’s drilling results come up to scratch, DiamondCorp will exercise its option and create an enlarged group, possibly renamed Sonop DiamondCorp. Loudon and colleagues suggest it could be producing 500,000 carats from Lace by 2010 and achieve revenues of around £72 million that year.

With prospects like this, DiamondCorp hopes to fund its Sonop deal with bank finance, though an equity raising of around £2 million, probably linked to a projected Johannesburg share listing in October, is on the cards. At 103p, up 8p today and nearly 19 per cent up on Growth Company Investor's April recommendation, the shares are worth holding.