Monday, March 8, 2021

Westhouse maintains ‘buy’ recommendation on BOD securities

Westhouse Securities Limited has maintained a buy on Botswana Diamonds (BOD) share price as the diamond exploration company continues to evaluate data from its Orapa license. The institutional broking firm said since BOD’s JV agreement with Alrosa, the Russian major, there has been a significant uplift in the progress of exploration programs which will hopefully generate substantial news flow over the next quarters.

“While there is no guarantee of success in diamond exploration, we believe the company is exploring all viable options,” Westhouse said in a research note.

“We maintain our buy recommendation and 7p target price,” it added.

Botswana Diamonds, under the chairmanship of John Teeling, said late last year it has signed a joint venture agreement with Sunland Holdings SA, a wholly owned subsidiary of Alrosa, which is the world’s largest producer of diamonds by value.

Under the deal, Alrosa will apply its technological knowhow. As a result a number of targets have been identified and the company has acquired licenses in the Orapa area—an area with Karowe mine and Debswana operations.

“Investors need to take a view on whether the company can generate positive news flow as it explores for diamondiferous kimberlites in Botswana,” advised Westhouse.

“We believe the tie-in with Alrosa mitigates some of the risks associated with the exploration due to the access to Alrosa technology,” it said, adding that investors need to take a view on the company’s financial position, specially with regards to it meeting funding requirements as part of the joint venture.

BOD recently said it will add over P3 million to the exploration kitty after it liquidated its interest in Bugeco, a private Belgian company which held an interest in an exploration concession in the Democratic Republic of Congo (DRC). However, Westhouse warned that due to BOD’s lack of resources and acceptable peers, the target price is primarily based on the monies
committed to date, which gives some representation of the expenditure required to reach similar stages of development.

“We have also included the expenditure to date on PL117 license area, which contains the diamondiferous AK10 kimberlite. Finally, we apply an 80 percent discount to our assessment of the value of BOD’s extensive in-house geological database,” it said.

Westhouse said it believes BOD is now well positioned to generate positive news flow as a result of collaboration with Alrosa, but warned that there are challenges that might affect the partnership. The news flow is expected in the coming months, particularly from the PL117 from which the joint venture intents to achieve first drill results by October/ November following sample results in July. The Gope news will also come in together with confirmation of a work programme for BOD’s new licences.

“However, should this fail to occur, there is risk that the company will be unable to attract funding to finance the evaluation of alternative exploration targets. There is also the potential that any weakness in the diamond market may affect investment into the sector”.

The diamond market at the moment remains positive with increased demand at a time when few projects are scheduled to come on-line and a number of older producing ones planning to go underground. Westhouse forecasts long term diamond price increase of 4 percent from 2016. Teeling and his team were looking to repeat their fortunes when they discovered Karowe mine, a producing mine operated by Lucara Diamond.

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