[miningmx.com] — AS SPECULATED by Miningmx on August 13, the bidder for AIM-listed junior African Diamonds (AFD) is TSX-listed Lucara Diamonds, the senior partner with AFD in the AK6 diamond mine in Botswana.
On Monday, AFD reported it had received a takeover offer from Lucara valuing the company at 51p a share – a 27% premium to the closing share price on October 1.
The offer consists of 0.8 of a Lucara share and one share in a new diamond exploration company – Botswana Exploration Plc – for every single share held in AFD. The total value of the transaction is C$82m.
Botswana Exploration will hold all of AFD’s interests, except for its 40% stake in AK6 in which Lucara already owns the other 60%.
The new company will be listed on AIM and the Botswana Stock Exchange and, in terms of this deal, has a directors’ valuation of 7p per AFD share.
Those interests include $2.9m in cash, exploration ground in Botswana including the AK8, AK9 and BK5 kimberlite pipes, advanced stage diamond licence applications in the Marange area of Zimbabwe and licence applications in Cameroon as well as indirect exposure to diamond plays in West Africa and the Democratic Republic of Congo.
The AFD board has unanimously recommended the proposal, subject to shareholder approval.
All AFD directors have irrevocably agreed to vote their shares in favour of the proposal, but the AFD board has the right to end the arrangement through payment of a $1m “break fee’ to Lucara should there be an unsolicited superior offer.
The bottom-line is that AFD shareholders will retain an indirect 26.6% stake in the AK6 pipe through their shareholding in Lucara. They will also have the option to go exploring again with the AFD founders in new company Botswana Exploration.
However, it seems AFD MD James Campbell may opt out of Botswana Exploration and move to Lucara.
He told Miningmx: “That’s under discussion with Lucara at the moment. There’s nothing final at this stage, but I may not be part of the exploration company.’
Campbell indicated the strategy followed by AFD chairman John Teeling and other founders of the company was that it made sense to sell out to Lucara and go exploring again before the major funding demands required to build the AK6 mine.
Teeling said in a statement: “The logic of this deal is compelling. Marrying AFD and Lucara will create a C$240m emerging diamond producer controlling two new kimberlite diamond mines. The company with strong financial backing will be perfectly poised to exploit an expected gap in diamond supply.
“The shareholders established AFD in 2001 as an early stage diamond prospector and they will return to this with the creation of Botswana Exploration.
“With some cash, good ground in Botswana and exciting opportunities in Zimbabwe and Cameroon, this vehicle has great potential.’
Lucara is controlled by the Lundin family. It has a 75% interest in the Mothae diamond project in Lesotho, which is located close to Gem Diamonds’ operating Letseng Diamond mine. Lucara is currently carrying out bulk sampling at Mothae.
Key question for investors is whether Botswana Exploration can replicate AFD’s success, given Campbell’s frank assessment that diamond exploration “is a very high risk area’.
Campbell believes that diamonds “are a very good business to be in, provided you own a world class asset’.
This is because of the fundamental outlook for the business, which is one of declining supply as production from a number of mines drops off over the next few years and, hopefully, rising demand as the economic recovery gathers pace.
“When you combine the limited amounts spent on exploring for new diamond mines with the expected falling production from a number of large mines, you are looking at a large drop-off in supply,’ Campbell said.
