Hello this is Harry Norman for Pro Active Investors. And welcome to another Pro Active audio interview. Today is the 4th of August 2009 and I’m talking with John Teeling, Non Executive Chairman of West African Diamonds.
John thank you very much for joining us for this interview.
Pleasure.
Please give investors a brief introduction to West African Diamonds and the company’s strategy.
West African Diamonds was a spin out from the AIM listed company African Diamonds which is developing the AK6 Diamond Mine at Botswana.
We had good assets in Sierra Leone and Guinea which were getting lost in the investor interest in Botswana. We spun them off with the intention of developing projects in both countries and that’s exactly what we’re doing.
What experience does the West African Diamonds Team have in diamond exploration, mine development and operations, John?
The Board is very experienced if you look through it. Apart from ourselves which have general mining experience we have a number of highly experienced ex De Beers diamond both explorers, prospectors and managers. But far more importantly in the country itself we acquired for shares a team from a company called Fast Track. And they have very strong local operating experience in Sierra Leone and Guinea. And they are critical to the success of West African.
What are your thoughts on the company selling its first packet of diamonds from the Bomboko Alluvial Diamond Mine in Guinea John?
It was a very important milestone for two reasons. One we had to show the market that we could actually create a mine and deliver revenue from Guinea or Sierra Leone. And secondly from the viewpoint of the directors we had to see what was the revenue we were going to get per carat, to see if we could develop the mine up to a fully commercial stage. Was the revenue going to cover the costs? I’m perfectly happy to be able to say that the price we got of $116 and $117 a carat while below what we thought we would get it, about $130 or $140, is adequate to cover costs and provide a profit. And so we immediately moved to expand the Mine.
What are your plans for the Bomboko Mine John?
It’s 6,000 tonnes a month at the moment. We are growing that to 36,000 tonnes a month. We had assumed that that was going to happen and we had acquired equipment, some of which we had in other countries. The bulk of the equipment is on site, it’s being commissioned as we speak.
What’s happening with your exploration project in Guinea and Sierra Leone John?
Let me deal with Sierra Leone first. We had a project where we built a Mine called the Plant 11 Operation. They’re using a new technology and it broke our heart. This technology did not work for us, we would recover gold and diamonds. We recovered some gold and no diamonds. This was from a very large tailings and slime dump that should have been very profitable, the grades that we had estimated from the research and the prospecting should have been enough to make a good profit, didn’t work. We were losing money and we closed it down and we have disposed of some of the equipment and moved the rest to Guinea.
On our more advanced project which was the Pipe 3 in Kono. We explored that, we drilled it, we mined it in on a trial mining basis and obtained good quality diamond. Now it’s a very small kimberlite pipe and this could only be developed in a small way. We are currently negotiating with an overseas company to joint venture that project into what will be a feasibility study which would be trial mining again in the hope that may be opening a small mine there.
On our dykes where we have 14 kilometres of detail, sampling mapping of dykes that’s on hold because the project by two other South African companies adjacent to us is also on hold there. But that could be moved forward very quickly.
In Sierra Leone we also have a gold project where we started with diamonds and found gold in the rivers and we’ve sampled it. And the analysis of that needs us to move to the next stage on that which is more detailed sampling and kind of a scoping study.
In Guinea apart from Bomboko we have one other very interesting and high potential project called the Droujbar Kimberlite. Which we were lucky to get it some years ago. We have a small rig, have been drilling there and up to now have been spending about $10,000 a month, essentially on drilling and mapping of the areas. We had hoped that the Droujbar Kimberlite area would turn out to be one large Kimberlite. This doesn’t look the case at the moment though we may need to drill deeper. It used to be a series of Kimberlites which are very high grade but low value. And in the surrounding areas the rivers of surrounding Droujbar we are sampling there and it has very good potential. So there’s quite an amount of work being done in both countries on the exploration stage at the moment.
What is West African Diamonds’ financial situation John?
Good after the recent fund raising. We raised £650,000 in one day which was a surprise to both our nominated advisor and ourselves and a good sign that the London Market is open for business. We’ll use that money to compete the Bomboko and do some other work. And by the time that’s finished we should have adequate cash flow coming from the expanded mine. So financially it’s in good position.
What can investors expect from West African Diamonds over the next 12 to 18 months? How seriously are you contemplating possible joint ventures?
Let me answer the latter part of the question first. Joint ventures are very much on our agenda in West Africa and possibly outside of West Africa. There will be a substantial flow of news coming from the company mainly as our operation gets up to full production stage. That will then have regular sales of diamonds in much larger parcels than we have at the moment, from say November onwards.
In the meantime we have been discussing with three listed diamond companies in West Africa how we might get together because all four of us are too small. We have completed our work with two of them and nothing will happen. The third one is very active at the moment it could lead to merger discussions or joint venture discussions between the two parties and I hope it will. I mentioned earlier in Sierra Leone we have joint venture negotiations going on with a company interested in coming into Pipe 3 they will be finalised within a month one way or the other.
The company itself is looking to may be move outside of West Africa. Opportunities have been presented to us in other areas where I think you will see in the next month or two we may have a non Guinea/Sierra Leona diamond exploration project.
What is the state of the diamond market following the credit crunch John?
Getting better but may be not well yet. It’s 30% better than it was in March but not as good as it was two years ago at all. There was no credit available from September through till about March so the wholesale purchasers have had no money to buy any diamonds. Their retail sales continued and the result is the pipeline cleared a little bit and people started to buy again. Is it a false dawn or is it a long term trend, I’m not sure. But the long term trend in diamonds is very very positive. Indian and Chinese buyers are still there and while there’s a reduction in the western world engagements and other occasions still happen and people buy a diamond.
The supply is at best fixed and is likely to decline. And there are significant opportunities in five or six or seven or ten years time the price of diamonds must be higher because there will not be diamond mines. Diamonds are very very difficult to find and there is a need for both alluvial and hard rock mines to come on stream. So the future looks very good, it’s getting to the future that is the problem.
What are your thoughts about operating in Guinea and Sierra Leone and the geo politics of that region?
It is the hardest place in the world that we work. It is very remote, very undeveloped, strongly tropical so it’s steep jungle in most cases. Very little infrastructure and you have to work with machetes and basically simple manual labour to get from one place to the other. You need mobile power generators; you need to put in your own roads. There’s a very strong monsoon season. So it’s just very hard.
However you cannot choose to go to the areas you want to, you must go where the diamonds are. And Guinea and Sierra Leone have some of the most beautiful diamonds in the world and are highly prospected for diamonds. So we will stay there.
On the political scene it is a relatively high risk area. There have been significant civil war problems in Sierra Leone between opposing tribes and in Guinea it’s unstable. You have religious divides in both countries as well. So it is not the best political environment in the world but there again you tend totake higher political risk in return for a far, far lower geological risk and high geological potential.
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