Botswana Diamonds is processing material at Marsfontein. Quality results could be the catalyst investors have been waiting for.
Despite a little volatility, Botswana Diamonds (LON: BOD) shares have essentially been on a road to nowhere for years. Down by 13% over the past five years, BOD has however risen by 25% year-to-date. And after peaking at 1.2p on 20 February, the FTSE AIM company finally looks to deliver a return for long-suffering investors.
But the investment case is not risk-free.
Botswana Diamonds in brief
Botswana Diamonds has a strong focus on the Kaapvaal craton which straddles the Southern African countries of Botswana, South Africa, Zimbabwe, eSwatini and Lesotho. The craton hosts some of the oldest rocks on earth and is host to a long legacy of diamond production. Happily, this makes it highly prospective for new discoveries.
Botswana remains the diamond explorer’s favoured state, as the country is already the largest diamond producer by value and remains relatively politically stable — however the near-term catalyst will come from neighbouring South Africa.
Financially, there is huge cash burn. Executive Chairman John Teeling notes that ‘exploration companies have no revenues and active explorers spend money. In recent years BOD has been funded by a small group of private investors as little or no funding was available in London or Johannesburg.’
In the financial year to 30 June 2022, BOD saw a loss of £716,430, an increase from the £557,499 lost in the prior year. The company had only £158,476 in cash at hand but has since raised an additional £294,475 and £352,425 from warrants since the financial year ended.
Adding up total cash, this yields a figure of £805,376. But assuming a loss of £59,702 per month since the end of June, for eight months to today, this gives a spend of £477,620. This leaves circa £327,756 in working capital at hand — or roughly five months of cash runway.
With total liabilities of £734,181, Botswana Diamonds is under conditions that ‘represent material uncertainties that may cast doubt on the Group’s ability to continue as a going concern.’
Further warrants, or a placing looks likely, though this is not guaranteed.
Marsfontein: the catalyst?
It’s worth noting that the £10 million company has several promising assets on the books — but it needs cash to explore these, and exploration is neither cheap nor guaranteed to deliver a return, no matter how enticing.
But in South Africa, Botswana Diamonds believes that there are ‘big opportunities for diamond exploration and development.’
Most important is the Thorny River venture, on which BOD has spent significant time and money, and which is likely to begin production in 2023. Thorny River is a kimberlite dyke system extension of the Marsfontein and Klipspringer mines.
Exploration has identified two deposits which between them contain up to 2 million tons — and the company expects the good quality grades between 46-74 cpht. Mining permits have been applied for and should be issued within H1, and the company has ‘a proposal from a contractor who would provide all mining and processing equipment in return for a percentage interest. This is being evaluated and considered as a potential viable option.’
But the key issue for now is the company’s new attempts to mine the Vutomi-owned Marsfontein waste dumps. Having previously attempted this without success, it had promised a new plan to start production in February.
The company notes that ‘neither Thorny River or Marsfontein are company makers but they will provide cash flow and will make BOD a diamond producer.’ Most importantly, they will provide capital to develop more promising assets held elsewhere and reduce the spectre of a placing deterring investment.
On 2 March, after missing its self-imposed deadline, it gave a short update, saying that site establishment commenced during the last week of January 2023 and since that time, approximately 1,500 tons of eluvial gravels from the main Marsfontein pipe have been excavated and are awaiting processing.
Further, BOD enthused that ‘the processing plant has been established and commissioning with gravels has just commenced. First recoveries of diamonds are therefore now expected this month and a further announcement will be made in due course.’
The result of this first mining will be crucial to the share price trajectory — but assuming all goes well, there could be sizeable upwards movement at some point in the next few weeks. If this works out, I’ll then delve into the various other projects.
As per usual, this is high-risk, high-reward territory.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
