Botswana: ‘The Switzerland of Africa’
“…Once mining permits have been secured, which the company says are imminent, plant and equipment currently in use at Marsfontein will move to the larger prospect. BOD continues to offer one of the few opportunities to invest in junior diamond exploration. The company may be a bold bet for 2024 if it can resume drilling and find interest from possible venture partners…”
Botswana Diamonds (AIM:BOD), a diamond explorer and producer in Sub-Saharan Africa, has struggled to sustain momentum in the face of the sharp decline in demand for diamonds that has persisted since the pandemic, and economic conditions hostile to exploration investment. But with a promising set of resources, and furnished with new funds for new drilling, the company is positioned to benefit from a market upturn.
Botswana
BOD’s assets are concentrated in the Kaapvaal craton that spans the Southern African countries of Botswana, South Africa, Zimbabwe, Eswatini and Lesotho, which has a long history of diamond production. The company’s primary focus is Botswana, a prolific producer of high value diamonds, most of gem quality, where it holds three prospecting licenses in the Central Kalahari Game Reserve covering KX36, a 3.5 hectare kimberlite pipe with an indicated resource of 17.9 million tonnes at 35 carats per 100 tons (cpht), and a further inferred resource of 6.7 million tonnes at 36 cpht (kimberlite rock is a primary source of diamonds).
Groundwork has been laid for significant mining operations at KX36: a state-of-the-art kimberlite bulk sampling plant is on site, equipped with crushing, scrubbing, dense media separation and x-ray recovery modules, and BOD has an extensive exploration database developed over 15 years of activity – both by the company itself and previous owners – which includes 375,000 km of airborne geophysical data, 228,000 km of soil sample results, 606 ground geophysical surveys and 32,000 km of drill logs. Data analysis has identified four high interest anomalies – all within a six kilometre radius of KX36 – that have been designed as drilling candidates.
By last month the company was ready to embark on follow-up ground geophysics on the kimberlite targets, which it believes ‘have great potential to upgrade the existing resources in the area’. BOD is exploring the possibility of reopening a nearby diamond mine at Ghagoo, currently in care and maintenance, which could significantly enhance the KX36 resource. The company has a 26pc stake in another Kalahari focused project, Maibwe, where exploration has identified four kimberlite pipes, at least one of which contains significant quantities of microdiamonds. Further drilling is planned.
South Africa and Zimbabwe
BOD has pursued extensive exploration work at the Thorny River Dyke System prospect in South Africa, which hosts kimberlite geology and grades consistent with that at the Klipspringer and Frischgewaagt mines to the west and the east. Thorny River is estimated to contain anywhere from 1.2 to 2.1 million tonnes of ore at an expected grade between 46 and 76 carats per hundred tonnes, with an expected diamond value per carat between $120 and $220.
The company is currently running a proof-of-concept project at the Marsfontein dumps and gravels site adjacent to Thorny River. Production operations at Marsfontein have been contracted out in return for a 15pc production royalty on Run-of-Mine goods and 25pc on high-value diamonds, the same economic and operational framework that will be applied at Thorny River. Once mining permits have been secured, which the company says are ‘imminent’, plant and equipment currently in use at Marsfontein will move to the larger prospect. BOD expects ‘to bring Thorny River diamond ground into operation in 2024’.
An August production update said that diamond recoveries and values at Marsfontein had been ‘above expectations’, 1,481 carats having been recovered with the largest stone being a low quality/value 24.6 carat stone together with several high value stones. By December 1,741 carats had been produced. A 40pc fall in diamond prices and a 30pc increase in energy prices obliged BOD to put Marsfontein on care and maintenance, with the expectation that production will resume ‘in January 2024’. The company reports that while mining Marsfontein ‘we discovered a higher-grade area which we were preparing to mine when closedown occurred’, and which will be the target area when mining resumes.
BOD also has an interest in Zimbabwe, in the form of an MoU with Vast Resources plc to form a special purpose vehicle to jointly develop the diamond potential of Marange Diamond Fields to the east of the country. A separate agreement between BOD and Vast will cover the joint development of diamond properties beyond Marange in a 50/50 joint venture model.
Meeting the challenge of lab-grown diamonds
As the company’s abortive operations at Marsfontein illustrate, BOD was hit hard by the downturn in the diamond market last year, economic uncertainty and high interest rates impacting demand both from consumers and diamond wholesalers, who traditionally hold large debt-financed inventories sensitive to borrowing rates.
Diamond explorers also face increasing competition from producers of lab-grown gems which can be made ever more cheaply, appealing to a luxury goods market still recovering from the sharp downturn in demand caused by the pandemic. Industry giant De Beers cut its costs by $100m last month as it continues to struggle with a deeper than expected fall in sales. Lab-grown diamonds have made particular inroads into demand for the one or two carat solitaire stones often used in engagement rings, prompting De Beers to bring back its iconic ‘A Diamond if Forever’ advertising campaign to highlight the abiding appeal of rare, natural diamonds.
The sentiment is echoed by BOD Chairman John Teeling, who argues that ‘An analogy can be made with automobiles. A Ferrari and a Ford Mondeo are both good cars but that’s the only commonality they share … Owning a natural diamond is an experience. They really are forever. Owning one represents a range of human emotions and tells a lot about the owner.’ Mr Teeling also notes that the lab-grown market is opening the world of diamonds to a wider audience, paving the way for possible trade ups to natural diamonds, particularly within the emerging middle classes in China and India.
Outlook
Those producers of natural diamonds who succeed in riding out current conditions will be well positioned to meet demand in a market in which supply has been further constrained by import bans against Russian diamonds. BOD is positioning itself to be one such survivor.
The company raised £380,000 in November to fund continued operations at Marsfontein and Thorny River, and has written off exploration expenditure of £3.2m on a joint venture undertaken several years ago, which it says that nonetheless ‘provided us with valuable data which we used to select the four licences currently under application with the Botswana Department of Mines.’ The company had cash of £199,438 as at the end of June 2023, prior to the fundraise.
BOD continues to offer one of the few opportunities to invest in junior diamond exploration. The company may be a bold bet for 2024 if it can resume drilling to delineate the potential of its assets, and find interest from possible venture partners. Down 40pc over the past year, priced 0.48p at the time of writing with a market cap of £5.36m, BOD stands to benefit from any long awaited upswing in the gem market.
