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Botswana inks joint venture acquisition of Ghaghoo diamond

Botswana inks joint venture acquisition of Ghaghoo diamond

Botswana Diamonds plc (“BOD”) is pleased to announce that Okwa Diamonds Pty Ltd, a joint venture with Vast Resources plc (“VAST”) in which Botswana Diamonds has an initial 10% carried interest, has today conditionally agreed to acquire Gem Diamonds Botswana Pty Ltd (“GDB”), a wholly owned subsidiary of Gem Diamonds Ltd (“Gem Diamonds”), for a cash consideration of US$4 million. GDB’s primary asset is the fully permitted Ghaghoo diamond mine in central Botswana which is currently under care and maintenance.

BOD has an initial free carried interest of 10% in Okwa Diamonds Pty Ltd (“Okwa”) for the first US$15 million of expenditure by Okwa, which is being funded by VAST (including the acquisition cash consideration). Thereafter, BOD will not be diluted below 2.5% of Okwa.  BOD can also earn up to a further 20% interest in Okwa through funding 20% of expenditure. Under the terms of the joint venture with VAST, BOD will be the operator of the Ghaghoo mine until such time as an agreed management team is in place. The acquisition of GDB is conditional, inter alia, on relevant regulatory and competition authority approvals in Botswana and is expected to complete during the latter part of 2021.

James Campbell, Managing Director, commented: “Working with our joint venture partner VAST, we have completed thorough due diligence on Ghaghoo. We believe there are significant opportunities to improve Ghaghoo’s operating and financial performance through both the application of new and optimisation of existing technologies along with a strongly recovering diamond market. Gem Diamonds’ advanced underground mine development and the surface infrastructure already in place, means a return to production is potentially possible with an overall objective to target a return to name plate capacity of 1.25 million tonnes yearly.”

John Teeling, Chairman, commented: “Our joint venture enables us to acquire an interest in an advanced mining project at minimal initial cost. Ghaghoo is one of the largest available diamond resources, and is contiguous with our KX36 project which should potentially create synergies between operations.  Ghaghoo and KX36 are both located in the Central Kalahari, which is our core area of focus in Botswana.  VAST are funding the acquisition cost and initial development capital, and our initial 10% free carry.  BOD is the operator for the project and has marketing rights equivalent to our shareholding in Okwa.  This is a very good development for BOD.”

Background on Ghaghoo

Ghaghoo is a 10.8 hectare kimberlite pipe located in the Central Kalahari of Botswana and was discovered in 1982 by Falconbridge Mining (later Xstrata) and evaluated in joint venture with De Beers up to 2007. Gem Diamonds acquired Ghaghoo from De Beers and Xstrata in May 2007. Gem Diamonds continued to evaluate the project and a study was undertaken in 2010 to determine the most viable way in which to exploit the deposit.

A Mining License was awarded to GDB in 2010. Further work on the kimberlite was deemed appropriate, and Gem Diamonds embarked on underground development to bulk sample the pipe in 2011/2012 through a decline shaft, and this developed into commercial production in 2015.

GDB is the holder of mining licence 2010/97L issued in terms of Section 41 of the Botswana Mines and Minerals act which grants GDB a mining licence for 25 years until 21 December 2036. The Government of Botswana does not have any equity in GDB but a royalty of 10% is payable to the Government of Botswana on all diamonds produced and sold.

Operations were based on a small underground mine that was ultimately not profitable due largely to the poor diamond market conditions at that time and operational issues. Accordingly, in February 2017, Gem Diamonds placed the mine on care and maintenance after recovery of just under 150,000 carats of diamonds.

There is extensive infrastructure on-site including a diamond processing plant comprising an autogenous mill, dense media separation plant (“DMS”), x-ray recovery and sort house. BOD’s due diligence has identified that there is a small low-grade kimberlite stockpile and DMS tailings of up to approximately 80,000 m3 and which may contain up to 60% kimberlite.

A resource estimate for Ghaghoo, which uses a bottom cut-off of +1.5mm was prepared by Venmyn with an effective date of 1 January 2014. This estimate had a reported SAMREC compliant Indicated Resource of 79,390,000 tons with an average grade of 19.51 cpht and diamond value of $242/ct and an Inferred Resource of 28,777,000 tons with an average grade of 17.52 cpht and an average diamond value of $239/ct.

Share sale agreement

Under the Share Sale Agreement entered into between BOD, VAST, Okwa and Gem, Okwa has conditionally agreed to acquire GDB, a wholly owned subsidiary of Gem Diamonds, for a cash consideration of US$4 million (the “Purchase Price”). In addition, the Purchase Price will be adjusted upwards or downwards by an amount equal to net current assets (excluding agreed inventory items) as per the final balance sheet of GDB to be prepared on the effective date (being the tenth business day following the date on which the last condition has been satisfied) – this amount is expected to be minimal.

BOD expects the conditions to be fulfilled and the transaction to complete during Q4 2021. Under the Share Sale Agreement, the consideration is payable in two instalments. The initial payment of US$2 million is to be paid five days prior to the effective date and the second payment by 23 December 2021, unless the initial payment has not already been made, in which case the full amount of US$4 million will be payable 5 five days prior to the effective date.

BOD and VAST as shareholders of Okwa have severally guaranteed the obligations and performance of Okwa under the Share Sale Agreement in proportion to their respective shareholdings in Okwa from time to time.  The replacement guarantee under the Mines and Minerals Act is a guarantee for the rehabilitation obligation on closure of the mine which has been independently assessed at BWP34,332,195 (approximately US3 million) on sudden closure.

Joint venture with VAST

BOD and VAST are the shareholders in Okwa, which was established as a special purpose vehicle to carry out due diligence and acquire GDB.  Conditional on completion of the Share Sale Agreement, BOD and VAST have agreed the terms of shareholders agreement. On completion of the acquisition, the board of Okwa will constitute a technical subcommittee for oversight of the operation of the mine and to determine funding requirements and VAST will be entitled to appoint two directors (of which one will be Chairman) and BOD will be entitled to appoint one director.

VAST is responsible for funding Okwa with the first US$15 million of funding required for the purposes of carrying out due diligence, acquiring GDB and placing the mine back into production. BOD has a 10% free carry in consideration of the services it has provided to Okwa up to maximum total expenditure of US$15 million (including the acquisition consideration) and may not be diluted

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