From Danny DeadlockLast fall our newsletter started following Tsodilo (TSXV: V.TSD), a quality diamond exploration play in Africa, in this same price range. At the time I mentioned that diamond speculation can have huge risks and rewards but they also require a tremendous amount of patience. I believe we are now at a stage where we will know whether or not Tsodilo will be a huge success or a huge failure within 12 months. Of particular importance are lab (core sample) results which will be announced in July or August. This spring they drilled out sections of kimberlite (many believe the only type of rock that "may" host diamonds) and those results were sent in for microdiamond analysis in early May.
What is particularly important, is that one batch of results is coming from an enormous kimberlite, 80 to 120 hectares in size. Some of the largest, and richest, diamond mines in the world are located in Botswana.
"Two of these targets, A12 and A37, proved to be crater-facies kimberlites and the results of micro-diamond sampling are awaited. A12 is estimated to be some 12 to 15 hectares in extent while A37 is estimated to be a massive 80 to 120 hectares with a champagne-glass cross sectional shape."
Diamond stocks, as we've seen with Metalex, have received little attention this past year. Tsodilo can also be thinly traded but unlike MTX, has held it's own all year. What is most impressive, is that management and insiders have been financing this company themselves and last week announced another $500,000 financing at $0.75 but this time with a fund out of New York. Ever since I have followed this company, they have financed above market price - something very rare in the junior mining scene. This recent financing comes right after the spring exploration program and while results were sent to the lab for analysis.
Tsodilo has a very experienced team and an enormous land position with impressive results to date. However, in a poor mining environment and when you're working in a remote region of Africa, very few people have paid any attention to them. The same thing happened with Fipke and Diamet. Those who took the early risk (small positions below $0.40), made small fortunes within 2yrs. From it's lows to it's highs, a $1000 investment in Diamet was worth more than $250,000.
During the boom of Diamet, hundreds of companies rallied on hope, but 99% went broke. Even to date, Canada will be lucky to ever see more than a few commercial diamond mines. One of the first tricks is finding a kimberlite. Kimberlites are rare in themselves, but commercial ones are the needle in the haystack. Kensington Resources (TSXV: V.KRT) found several in Saskatchewan years ago and is still trying to prove up something commercial, with little success.
Tsodilo has yet to turn up any diamonds but they only recently sunk drills into kimberlite, so this summer will be the first solid kick at the cat. Even if it fails, there are still dozens of targets they will hit over the next year and if only one is a success, this stock will react quickly. If they fail on these first holes, the stock will likely correct into the $0.40's or $0.50's but because it is tightly held, the pain would mainly be absorbed by insiders. Unlike many junior miners who often (gladly) risk other people's money, management has put their money where their mouth is.
What would really attract an enormous amount of attention would be if Kimberlite A37 returns any diamonds. Because some of the world's largest diamond mines are in this region of Africa, any indication of diamonds in a kimberlite of this size would attract tremendous international attention. This is pure blue sky speculation, but if they ever hit on something like A37, you would see a share price easily in the double digits.
For those interested in this type of speculation, treat it like an expensive lottery ticket. Within 12mths you're either going to win or you're going to lose - there is no room for moderate success. It's the type of stock where you put a small amount into it, and you forget about it. You must literally plan to lose 100% of the money. If they hit an economic kimberlite over the next year, we could see the stock go double digits. If they don't, you take a capital loss.
For those that are interested, these first results will not come out until July at the earliest.
DISCLOSURE:
Danny Deadlock owns 8000 shares of Meridex (purchased in 2004) / 5000 shares of Metalex (purchased in 2004) and 10,000 shares of Tsodilo (purchased in 2003)
Danny Deadlock
www.microcap.com