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SA’s Vutomi project can start production end of 2018 – John Teeling

26 june 2017

john_teeling_xx.jpgBotswana Diamonds entered into an option and earn-in agreement with Vutomi Mining and Razorbill Properties, a private diamond exploration and development firm in South Africa last February.

It agreed to pay Vutomi a total of £942,000 in cash, of which £581,000 would be used to fund exploration activities.

In addition, the company would issue 100 million ordinary shares of 0.25p each to Vutomi shareholders, after which the company would own 72 percent of Vutomi.

The flagship project, Frischgewaagt, was in the Limpopo Province 300km north of Johannesburg and was immediately adjacent to the Marsfontein Mine which was previously operated by De Beers.

It recently recovered 223 microdiamonds from 160kg of kimberlite drill core from the project.

Botswana Diamonds said the kimberlite drill core results were modelled to an estimated grade range of 20 to 270 carats per hundred tonnes at a bottom cut off of 0.6 mm, with the largest stone being a white transparent crystal diamond falling in the -1.18+0.85 mm sieve.

Company chairperson John Teeling told Rough & Polished’s Mathew Nyaungwa on the sidelines of the Botswana Resource Sector Conference in Gaborone that it was possible that they might consider some production by the end of next year, if not early 2019 as they were looking at the possibility of using other people’s plants rather than their own, a move that would significantly lower capital expenditure.

Teeling emphasised that production was only feasible if they follow a low-cost regime, adding that the project won’t be “huge”, but the diamonds produced would be of “good quality”.

He also commented on Botswana Diamonds’ three-and-half-year relationship with their joint venture partner, Alrosa as well as the implications of the liquidation of their partner in the Maibwe project, BCL.

Botswana Diamonds raised £525,000 last March for its exploration and drilling programmes. Can you confirm if you are fully funded for your exploration and drilling projects this year?

No, we are not, the £525, 000 was to take us through the first half of the year and we are currently placing another £700, 000 because our budget has increased a little bit and we suspect or anticipate that will be completed by the end of June. We intended at the end of 2016 to raise £1 million, which would have funded us for the year but the fundraising was badly handled in the UK. In situations like this … the share tends to fall…so they can then buy shares at a cheaper price and that’s what happened. We were at 1.90p in December when we started the funding and then we fell very rapidly to about 1.10p, which was very horrible. So, we raised enough to keep us going for six months and we believe that some of the work we have done has shown the potential we think it has, so we will raise the other money now. I think this placing will be quite pleasing…

So how did you spend the funds that you raised last March?

What we have done with the money that we raised in March is we are pursuing three projects, firstly we drilled about 40 holes, these are reverse circulation holes in the Vutomi Project in South Africa. Secondly, we funded the joint venture with Alrosa and that was probably about $300 000 or £220 000. They have completed the first half of the year’s work. Again, they tell me, as they would, that some areas are good and thirdly we have drilled three reverse circulation holes in the CKGR (Central Kalahari Game Reserve), and results will be out shortly so that’s where the money has gone for the first half year.

So, apart from these three projects that you have channeled the funds to as you said, do you have any other projects that you are looking at the moment?

We have a few but I am very reluctant to take any more projects at the moment simply because we appear to have very good near-term potential in two of the three.

Which are?

Vutomi in South Africa, it’s a dyke so it’s not huge, running from the Marsfontein mine, which was very successful small mine for De Beers and our managing director James Campbell opened, ran and closed that when he was an employee of De Beers. We will be looking for something similar… the payback [for the $25 million invested in Marsfontein by De Beers) was four days, can you believe it? That was unusual, but the work that is being done, I was there [recently], they were doing closer geophysics (to further delineate the kimberlite). We are looking for where the blows (dykes) might expand and if that is the case those ones can be mined very quickly and maybe next year. We are also looking at the possibility of using other people’s plants rather our own, so we would be having a touring arrangement if that is the case, then capex could be quite small. You are the first one I am telling that, it’s possible that by the end of next year, maybe into 2019, we could be in a position that you might consider some production. If we follow that particular low cost [pattern] … it would make sense to do that, as you are looking at a few millions, not a huge project. It would be small, but the diamonds are of good quality that we have seen from previous work and the grade will be great. So, it could be a cash earner. The second one is the Maibwe Joint Venture in Botswana and it will depend significantly on the drilling results that are due now and the next stage of drilling another 40 holes which will happen between now and September or October and then we could have an estimate, it wouldn’t be a bankable estimate, but we will have a resource estimate, we would look from 800 000 carats, which is quite small, and we could work with that.

Can you shed some more light on the current state of your work in CKGR?

I [recently] spent some time with our JV partners Alrosa here (Gaborone), who have become very enamored of Botswana over the last three-and-half years. Their initial interest was Orapa only – so we got some new licences there in March. Now they have moved into the CKGR and they like it substantially. They have an annual budget and big multinationals have trouble changing their annual budgets so you can be assured that the last half year of the year is what was agreed this time last year, so they would do that, as they find it hard to change. But they see opportunities for more licences in the Jwaneng area. My people would agree on that one … so we would imagine that in 2018 there could be an increase in exploration budget, but this is for early stage exploration. We would also like to drill some of the work they are doing at the moment. We have two particular licences (PL234 and PL235) and both of them have targets and anomalies. They need to be refined and there is a good chance we will drill them in the last half of 2017, but given the budget the way they work, it might be the first half of 2018. So, there are targets on that and that’s where we are with Alrosa.

Talking of Alrosa I remember the first time you told me about your JV with Alrosa, you spoke highly of Alrosa. Do you still have the same view of them having worked together for three-and-half years?

After three-and-half years I would like to report that a progress. I still admire what they do and they are very, very technical and very structured as well as organised in what they do. For reasons, I am not clear about, they came here saying they were going to find kimberlites and they will be diamondiferous. So far, they haven’t, I wish I could say something different. They have discovered anomalies, we drilled three holes last year on particularly prospective target and four holes on another target. So, in two of our licences we drilled 7 holes and neither of them found even kimberlites… and that was a concern. The technology they bring is unusual because of the speed at which they do. They bring teams to the sites with mobile labs so you do your soil sampling in 36 hours rather than in 2 months so you know where to go. One of the difficulties with that is that you go through licences very quickly, if they don’t find anything they move on. Is that a good thing? No! Also on this electromagnetic studies that they do, they tend to run it through a computer programme they bring with them, so they can actually see the structures they believe to be there instantly, innovative… We would certainly hope that the programme will progress [given the millions of dollars of our money we have spent]. We are very happy with them as our partners and they are very good. They do precisely what they say they would do, not nearly but exactly.

With your JV with Alrosa, do you envisage the shareholding changing if you find something economic?

I think, if I can I will expand your question. I think Alrosa is looking at expanding internationally, now that they are the biggest diamond company. They told us that their own production could start to decline in about five years-time in Siberia. They have a massive discovery in Angola called Luaxe, massive, 650 million carats, 10 million carats a year. They like Africa and you cannot be in African exploration and not be in Botswana. They are very good and legalistic. I think they will possibly look to expand their own interests in Botswana either by acquiring other businesses, other projects. It will be interesting to see what happens there because we have a legal agreement at the moment that things will be shown to each other what we have and we wouldn’t interfere. I will be not surprised at all if I see Alrosa becoming more in Botswana diamonds. They have a very young president, a very young man, who apparently is very pro-African.

So by and large, you are optimistic of finding economic deposits in Botswana?

Definitely yes, I have no doubt about that. I haven’t changed my mind on that. There are more diamonds in Botswana, that is a certainty. Will they be large? Possibly. Will they be adept? Possibly might be more adept than they have been and that’s why we want these electromagnetic studies… If both of us are around in years to come, we would say ‘look and that was discovered’. What is being done in lots of places, nothing unusual, is people are going back over old ground looking at things that were not there and that’s a possibility. New fresh discoveries, there haven’t been any apart from Karowe in 2004 that is because diamond exploration is tough.

I know you like to go for diamond exploration and once you find something economic you sell. At some point you told me that you might consider holding on to a mine for production purposes.

Imagine if I had managed to hold on to Karowe… you would be having this interview on Manticao on my yatch, not here, and it would be a big yatch. So, the idea is, yes, you would like to do that, but the difficulty can be here that … when you find something that looks good, usually you are struggling for money. Explorers go through the valley of debt. Once you get a discovery there is a big rise in the share price and then you get to spend up to eight or nine years approving it before it gets built and in that time you are very vulnerable. We are usually a public-listed company and it is prone to be taken by someone who comes and makes a good offer, which is precisely what happened with African Diamonds. We are a bit stronger at the moment with Botswana Diamonds because 50 percent of the shares are owned by small group of us. That’s a weakness as much as it is a strength, as it means we have to contribute the money amongst ourselves, but, yes, you would like to do it and the objective though is to find a commercial diamond deposit and, secondly, can we keep control of it? It would be hard to keep it, very hard.

You have an interest in the Gope district held in joint venture with Brightstone, a private South African company, through a stake in a Botswana company called Siseko. Can you provide an update on the work undertaken on the Gope ground?

It’s a step forward and somewhat different in Botswana. These were licences that were obtained by a group of locals called Future Minerals. They got a South African company Siseko to [try and find diamonds] and we in turn spent $1 million on preliminary work and BCL came in and joint ventured us. The eventual shareholding was BCL 51 percent by spending BWP10 million and the local company Future had 20 percent and Siseko of which we have a 51 percent, had 29 percent, so our net interest is 15 percent. BCL struggled from the time they got in. They drilled and got very good results and these results were not made public. They then struggled with their positions – nothing to do with diamonds. So, they are now being liquidated, they are unable to perform and I don’t know what will happen to the actual JV called Maibwe. It should be dissolved, so the shares will probably come back to Siseko and Future. With permission from the various parties we, at our own cost, drilled three wells simply to verify and the results [of the work done by BCL]. It wasn’t done badly, it was done differently, but it wasn’t something that we could rely on (hence the verification). Data is being analysed as we speak and they will be due shortly. All I could tell you is they might be diamonds and they might be not. We have always known that they were kimberlites there, but they were supposed to be barren. We are really at a very early stage and hopefully we can reach an accommodation with the liquidator. That will be as much as Siseko and Future as it would be Botswana Diamonds because we are a minority in this particular situation. I am not party to what is going on with the liquidator with BCL and I am sure very people are, so its being held up. It’s an exciting project, it’s an area that might have diamonds where previously there were no diamonds.

You once had a flirtation in Zim, if I may put it like that. Will you consider going back there in future?

I went into Zimbabwe in 1986 with a company called African Gold, because it is one of the highly prospective countries. Secondly, we also assumed that there would be a change of regime. It’s a shocking thing to say that we thought the president couldn’t live that long. I exited in 2011, 25 years later and the man looks as healthy as he ever looked, if not healthier. So yes, it’s a highly prospective country, it had its problems, major problems, we had three or four small gold operations. I think it is still prospective for gold and platinum. I would love to get a proper opportunity to look at Marange diamonds … but it will take some time before that happens and certainly if you could be sure of getting any kind of serious tittle, yes, I would go back to Zimbabwe.

What will you be looking in Marange?

We went into Marange before as Botswana Diamonds in 2009 and we applied for a block, but things unraveled very rapidly and it’s more normal now. It’s a consolidated alluvial, a hard rock alluvial, which is almost contradictory in terms, so when you go through the first meter or two meters of very high grade of stones then you get to a very hard rock and it needs to be evaluated again, but I think there are still some opportunities there in diamonds. We followed them down to the Save River where they were washed down from Zimbabwe into Mozambique. It was more financial scarcity that we stopped than anything else. Definitely, there are all kinds of opportunities in Zimbabwe not just in diamonds. The geology doesn’t change, the politics will change and I hope I will be in a position and well enough to go back there.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished

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