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OF INTEREST MAYBE------------
juniors
Julie Bain
Posted: Mon, 15 Sep 2008
[miningmx.com] -- EMBOLDENED BY THE unprecedented bull-run in metal prices, junior miners are becoming increasingly willing to shoulder a bit of hardship in search of the much-vaunted “company-making” discovery. This includes operating in regions with unforgiving geographies such as Africa’s desert and semi-arid regions.


Take John Teeling, chairman of the UK-listed African Diamonds. He’s in the fortunate position of heading a junior mining company with proven resources and that has De Beers as a partner. Set against this is the difficulty of operating in the Kalahari; more specifically the Orapa semi-desert region in which African Diamonds’ main prospect, the AK6 project is located.

The Kalahari may be inhospitable but it pales in comparison to the deserts of Iran where Persian Gold, another company Teeling founded and heads, is digging for metal. “[By comparison] Botswana is lush,” says Teeling.

James Campbell, CEO of African Diamonds, says Botswana has one of the best mining cultures in Africa. In his opinion, it’s the best place to work in Africa.

African Diamonds has a 29% interest in AK6, which is scheduled to start production by early 2010. Teeling said when it starts producing it will be one of only 12 operating hard rock diamond mines in the world.

That fact is another key to what drives diamond exploration companies across Africa, encouraged by a market where the supply of diamonds is waning.

We want to be proactive not reactiveThe effect of the slump in the US economy and the impact of inflation globally may knock diamond sales, but in the longer term, companies seem confident that good quality diamonds will always find a buyer.

African Diamonds has a number of prospects in Botswana. In fact, there are few regions with its proven reserves of diamonds. Having secured prospecting licences in some of these areas in Botswana, which is home to some of the largest diamond mines in the world, gives African Diamonds a sound suite of projects.

Teeling said an application for a mining licence has been submitted for AK6, which is also in the Orapa region. At the AK8 prospect, for instance, field work has been completed and there’s the possibility that it might yield a “small mine” of an estimated 300 000 carats a year.

A major turning point for African Diamonds would be if its other kimberlite discoveries, in association with De Beers and mostly in the Makgadikgadi Salt Pans area, which lies north of the Orapa mine, could be turned to account. Expressing the kind of optimism that’s typical of all exploration firms, Teeling believes it’s possible.

Just as South Africa is keen to attract junior miners, with exploration assets in the country, to list on the JSE, Botswana and Namibia are eager to do the same.

African Diamonds has a secondary listing on the Botswana exchange, and investors in Botswana hold more than 20% of the company.

In addition to its joint venture with De Beers, African Diamonds has a separate wholly owned business in Botswana. It’s carrying out a review of the previously completed geographical survey data on what is known as the Kedia block, another inhospitable semi-arid area in the Central Kalahari Game Reserves, which lies to the west of Orapa and covers more than 3 000sq km.

For African Diamond investors, it’s a matter of sitting tight as the exploration company is still recording a loss.

In the six months to end-December, the loss was £202 000 compared with a loss of £176 000 in the corresponding six months last year; and costs are likely to rise as it pays its proportion of the exploration costs in Botswana. The exploration will be funded 70% by De Beers and 30% by African Diamonds.

When it comes to the development of the mine at AK6, De Beers will fund the construction, and African Diamond’s portion will be repaid out of dividends. Campbell said this structure was used in order to avoid any shareholder dilution, meaning the company is unlikely to have to issue more shares to pay for the development of the mine.

He added that once the company’s mining rights are secured, and noting that by early 2010 the company should have its share of the cash flow from the sale of diamonds from AK6, African Diamonds hopes to take part in the widely anticipated rationalisation of the junior mining sector.

“We want to be proactive not reactive,” said Campbell.