Petrel Resources - moderated discussion/research part II

'Once the project gets into hard work it's no longer sexy'
Thursday December 14th 2006




Profile

NAME: John Teeling

TITLE: Chairman of African Diamonds

AGE: 60

FAMILY: Wife and 3 grown children of whom Jack, the eldest son, works with me.

HOBBIES: Rugby, including playing golden oldies rugby, cricket

LAST BOOK: The Skeleton Coast by Clive Cussler

LAST FILM: Casino Royale

DRIVES: '92 Jaguar XJS

SCHOOL: St Joseph's CBS, Fairview

FAVOURITE RESTAURANT: Food is fuel, so no favourite

FAVOURITE ALBUM: I do not own a CD player, an iPod or an MP3 player.

JOHN Teeling has had many and varied business interests over the years but his African Diamonds operation stands out as a ground-breaking venture.

The company is now on the verge of opening its first diamond mine, located in Botswana and in partnership with the industry giant De Beers.

Diamonds are valued by weight and purity. At the company's AK6 diamond prospect in Botswana, both of these measures point to a successful mine in the making. "A carat is one-fifth of a gramme. AK 6 has some of the best values in the world - we are looking at 25 carats for every 100 tonnes or one-sixth of an ounce for every truck load of crushed ore," Teeling explains.

With a carat valued at anything up to $150 depending on its purity and the resource estimated to contain about 11 million carats worth of diamonds, the value of this project to his company could be immense. But even with such dramatic figures, Teeling feels that investors have not yet got to grips with the company's potential.

"Once the project gets into the hard work stage it's no longer sexy," he says, adding by way of explanation that there are now about 50 people working on the evaluation of the AK6 discovery in Orapa, Botswana.

"This is due for completion on January 27, at which stage we should have a detailed mine plan. After that, it is up to us to decide which way to go."

Of particular significance was the discovery earlier this year that AK6 also contained the very rare Type Two diamonds. "These stones tend to be large and contain no nitrogen. Only 2pc of all known diamonds are Type Two and they include fabled gemstones such as the Cullinan diamond and large stones in the Crown Jewels."

While diamonds are immensely strong, these Type Two diamonds can be brittle and will crack during the milling process used to crush the ore. Recovering these stones intact adds challenges to the mining plan but is well worth the effort as they are in huge demand and, being bigger, are all the rage in the bling-conscious fashion world right now. "In June 2006, the value per carat was estimated at $150, which places AK6 among the highest value per carat kimberlite projects in the world," Teeling claims.

Teeling stresses that there will be alternative strategies available for the development of the diamond project - alternatives to the De Luxe models which tend to come from companies like its partner De Beers.

While De Beers will spend big to get the best plant available, a project run by Teeling might, as he says himself, be more "elastoplast and armbands". "Between the two there are other ways of doing it.

"One option is to start smaller but quicker. The mine could be up and running within 18 months," the African Diamonds chairman explains.

The current studies assume an open cast mine down to 400 metres operating at approximately 4 million tonnes a year to recover 48 million tonnes of ore containing over 11 million carats of diamonds. "This will take the project up to 2020 after which the mine may go underground. Alternative strategies which could expedite start-up and lower capital costs are also being evaluated," he says.

De Beers are spending up to $16m a year on AK6 alone. African Diamonds, which currently holds a 49pc stake in the project, is fully carried, which means that it incurs no expenditure. Once a Bankable Feasibility Study is declared on AK6, the percentages in the overall joint venture change to 70/30 De Beers/African Diamonds.

While AK6 is the obvious focus of attention and effort - he says the volume of AK6 samples is clogging the entire De Beers analysis facilities - there is substantial and significant exploration work being carried out on other areas held by the partners in Botswana. Of particular relevance to African Diamonds is the status of the AK8 discovery, a 5.1 hectare pipe which lies within 10km of AK6. Exploration and evaluation to date suggests that this discovery could be a satellite supplier to AK6, a strategy which Teeling explains would normally be followed by De Beers.

However, under the terms of its deal, African Diamonds may develop this prospect as an entirely separate mine. "African Diamonds may have an alternative view of developing a smaller, stand-alone mine as under the terms of the De Beers/African Diamonds joint venture, African Diamonds will operate mines with annual revenue of less than $70m."

Teeling says the AK8 pipe has two lobes and that the south lobe, some 2.5 hectares in size, has a grade of between nine and 16 carats per tonne of ore. "It is possible that a low-cost operation could be viable in this lobe," he says, adding that more exploration is needed to better define the resource, work on which is scheduled for 2007.

He is excited about the coming year and believes that the partners will enjoy success on a "Blue Sky" exploration project over ground close to the Orapa diamond mine.

He says that African Diamonds has been focused on obtaining this licence, PL36, for years.

"It is well located close to the Orapa mines and is known to contain numerous diamondiferous kimberlites. Boteti, our joint venture company, proposed a substantial exploration programme for PL36. This programme, which is already underway, will use the full array of exploration techniques in the De Beers armoury."

Three kimberlites, BK3, BK6 and BK7, are in Teeling's words, large and "known to have form".

"They are the immediate targets," he says, adding that the first results from exploration work should be available early next year.

Pat Boyle