Friday, March 1, 2024

Westhouse recommends a BUY on Botswana Diamonds on Alrosa deal

Westhouse Securities Limited has raised the rating on Botswana Diamonds as the research company recommended a ‘buy’ following BOD partnership with Alrosa to scour for diamonds in the country.
Botswana Diamonds, under the Chairmanship of John Teeling, revealed recently that it had signed a joint venture (JV) agreement with Sunland Holdings SA, a wholly-owned subsidiary of OJSC “Alrosa”, the world’s largest diamond producer by volume.
Under the deal, the BSE/AIM quoted company can use Alrosa’s technological knowledge to its extensive database. As a result, a number of targets have been identified and the company has applied for licences in the Orapa region; an area which has had some of the largest, and best, diamond discoveries in the world.
In addition, BOD has a concession of 8,000km2 in Cameroon. This includes a 484km2 exploration permit which contains a diamond bearing paleoplacer rock.
“Following news of Botswana Diamond’s JV agreement with Alrosa, we upgrade our recommendation from Add to Buy and increase our target price from 5.5p to 7.0p, which implies c.133 percent upside from the current share price (3p),” Westhouse said in a note.

“We believe the Alrosa JV further enhances the early-stage opportunity to invest in a management team with a track record of realising value from African-based mining operations.”
The broker said due to the company’s lack of resources and acceptable peers, its target price is primarily based on the monies committed to date, which gives some representation of the expenditure required to reach a similar stage of development.
It added that it has included the expenditure to date on the PL117 licence area, which contains the diamondiferous AK10 kimberlite.
Westhouse said the announcement on the joint venture (JV) with Alrosa was a positive step for the company, as it can now formalise the work undertaken over the past 18 months in which Alrosa’s more advanced technology was used on BOD’s extensive database.
“This is important as it increases the likelihood of the company successfully identifying kimberlite targets within its licence areas by allowing it to process the data more quickly and generate new targets which have previously not been discovered,” the note said.
“Coincidentally, one of the targets generated during Alrosa’s analysis was close to AK10, which was originally discovered by the BOD management team during its time in charge of African Diamonds. The initial budget for the JV is US$1m, which should enable significant progress to be made on the key targets.”
The brokerage firm revealed that although the JV was only announced in mid-August, the two companies have been working together for over 18 months. During this time they have secured some of the best ground in the Gope and Orapa areas of Botswana, where they have identified multiple targets. One of these targets is currently being explored by ground geophysics in order to identify specific drilling targets. In total, BOD currently has access to 7,254km2 of licences either owned by itself, or its JV partners. In addition, BOD holds interests in DRC, Mozambique and Cameroon.
Of these, the most interesting is currently the 8,087km2 near Mobilong, of which it has converted 484km2 to an exploration licence, which adjoins the licence area held by CNK Mining, a South Korean company which has previously announced its intentions to mine the diamondiferous conglomerate present on its property.
“BOD’s management team is looking to repeat the success it had at African Diamonds, where it acquired attractive ground, JV’d with De Beers, and subsequently discovered the AK6 (Karowe) kimberlite mine in 2004. Lucara (part of the Lundin group) later acquired the De Beers’ stake before buying African Diamonds for US$90m in 2010. We believe this demonstrates the management team’s ability to operate successfully in the region.”
Teeling said the time of announcing the joint venture with Alrosa that they delighted with this agreement. “This is good news for Botswana Diamonds – and for Botswana itself. We have already been working together for over 18 months on selecting the best ground in the Orapa and Gope areas of Botswana and we have multiple targets”.
Westhouse also pointed out that the long term the diamond market outlook is positive, with increasing demand at a time when few projects are scheduled to come on-line and a number of older producing mines are anticipated to be moving to underground mining over the next decade. “We forecast long-term diamond price increases of 4 percent pa from 2016.”


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