Make no mistake: Botswana Diamonds (LON:BOD) is a high risk investment. But potential rewards are significant if the stars align.
And by teaming up with Russia’s Alrosa, the world's largest diamond producer, Botswana is giving itself a fighting chance of success.
“We had been trying to get Alrosa for five or six years,” reveals John Teeling, chairman of the AIM-listed, Dublin based explorer.
“If you look over the way we operate, you will see we try to reduce geological risk and usually we will take higher political risk – though in the case of Botswana that really isn’t the case. Then we tend to bring in a partner to stretch our dollars.”
The track record of the Russian giant is impressive, having discovered 17 producing, hard rock mines that churned out 37 million carats last year, equating to 26% of the world’s production.
Key to Alrosa’s success has been its unique exploration technology that allows it probe deep below the Siberian tundra.
And it will be key to identifying diamond-bearing kimberlites covered by the Kalahari sand, swamps and basalt that makes exploration difficult in Botswana.
“That is the reason we are with them. Nobody has ever found 17 hard rock diamond mines,” says Teeling.
“And they found those through the tundra. The big problem for every explorer where you have overburden is what’s underneath it.”
The 50-50 joint-venture, inked a year ago, has a budget of US$1mln this year with exploration work focusing on the PL117 licence in the Orapa area of Botswana.
Work got underway in January and has identified two priority targets (AN1 and AN2), 10 kilometres from the Karowe mine.
Drilling will commence on AN2 in late September once an eight-strong team of Alrosa specialists arrives in Botswana.
The first pass drilling is aimed at discovering whether there is actually kimberlite 60-100 metres below the Kalahari sand cover.
Of course the samples will also be analysed for diamond content. The more prospective AN1 target will be drilled when the Alrosa team decides definitively on the drill co-ordinates.
Two holes will be drilled into AN2 and “two to three holes” into AN1, reveals Teeling, who adds: “You will know by early next year whether this is worthwhile.
“If you see us do a second round of drilling on these targets that will be very good news.”
Meanwhile, Teeling believes the partners will know whether it has a commercial discovery within 18 months.
However, PL117 is just one licence – and a small one at that.
There are “five to six others with Alrosa targets on them” where geophysical, geochemical and possibly aeromagnetic surveys will be carried out over the next 12 months, so the pair have multiple shots on goal.
Up 11% in the past month at 2.92p, Botswana Diamond shares have some way to go to reach the 7p valuation put on them by City broker Westhouse.
However, it is fair to say there is some scepticism about the tie-up.
SP Angel’s veteran mining analyst John Meyer has expressed some fairly strident views on the chance of success, although he does add: “We, from an investor perspective, look forward to eating our words.”
Ryan Long, of Northland Capital, occupies the middle ground.
“Diamond exploration remains a high risk business with the majority of exploration programmes failing to define an economic kimberlite, highlighted by the significant lack of discoveries over the last 30 years.
“The lack of discoveries would make a new discovery highly prized and as such we view Botswana Diamonds as a high risk but potentially high reward investment.”