TAW 0.00% 31.0¢ tawana resources nl

a reminder of the bonanza valuation

  1. 5,447 Posts.
    With the market gone quiet it is a good time to look at the valuation put on Tawara Resources by overseas brokers. The Bulletin published this in June.

    A bullish assessment of Tawana Resources from London stockbroker W.H. Ireland claims in a research report to clients that diamond prospector Tawana is worth at least $4.30 a share – nearly FIVE times its present price. Readers will note we added Tawana (ASX code: TAW) to the Speculator's portfolio in mid-May at 65¢, on the strength of the company's joint venture with BHP Billiton on calcrete-covered diamond prospects in South Africa's Kimberley region (B, May 20).
    Then, in late June, Tawana reported a widely spaced drilling program had discovered kimberlitic garnets in a paleo-channel within an area 9km long by 2km wide below De Beers' rich Finsch diamond mine. Since the recovered garnets show a lack of abrasion, Tawana managing-director Wolfgang Marx believes the find indicates they have been derived from a nearby kimberlite resource. The Finsch pipe is located just 6km north of the find.

    The discovery has earned Tawana a 30% equity in the prospect. It also pushed Tawana's share price to a year's peak in early July of $1.13. Last week they had eased back to 90¢.

    Tawana will now spend about $200,000 to extract a 500-tonne bulk sample of alluvial gravels overlying the dolerite bedrock and covered with an average 20m of calcrete overburden. That will earn Tawana a 40% equity in the prospect, known as the Daniel Alluvials Project (DAP), with first results due in September.

    The London broker asserts DAP's close proximity to Finsch indicates a high probability of diamonds: the Finsch area is about 135 million years old and erosion is believed to have removed as much as 1400m from the surface, precipitating some 2 billion tonnes or $US48bn ($73bn) of diamonds in total into the surrounding area. Those that fed into the Daniel channel are likely to be trapped in the ancient river gravels.

    As a guide to its potential, W.H. Ireland compares the Bow River alluvials field below the Argyle diamond mine in the West Australian Kimberley. Argyle's grade was about 400 carats/100 tonnes (cpht) with an average carat value of $US10. Bow River, 26km downstream from Argyle, produced 30cpht with an average carat value of $US30 over seven years (yielding seven million carats in total).

    So Bow River's grade was well below Argyle's but the average carat value was three times higher (since more diamonds of gemstone quality survive transportation). Given that DAP is considerably closer to the Finsch mine (6km) than Bow River was to Argyle (26km), the broker assumes a higher-grade relationship between the DAP and Finsch (50cpht). The analyst assumes 5cpht for DAP and an average carat value of $US150, somewhat below Finsch's recent value. From that and a reserve of 280m tonnes, a grade of 5cpht gives 14m carats at $US150/carat or $US2bn of diamonds in situ (of which $US800m would be due to Tawana). That huge reserve of alluvials would give a 20-year mine life. With a projected yield of $US7/tonne and working costs of $US2.50/tonne, Tawana's gross margin would be $US400m.

    The broker computes a "rough" net present value of $US140m for Tawana's net share, equivalent to a net present value of $4.30 for each Tawana share fully diluted through the exercise of 15 million options at 50¢ due on June 30. That exercise would have taken Tawana's issued capital to 50 million shares. At the time of writing, the company was yet to confirm the results of the exercise but certainly more than 10 million of the options were closed out, raising $5m in cash. The company now has $7m cash and no debt. Shareholders registered by July 22 will be eligible for a one-for-two free issue of options exercisable at 75¢ in 2005. W.H. Ireland's final word: "The shares are very cheap and should be bought."

    Reminds me om ZIM when I recommended them as a buy at $1-55 and they went to $4-50. TAW will not take so long if just one diamond is found. A great buy with the results of the drilling so close.
 
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