bulletin article, page-19

re: here's the bulletin article It's make or break time for Tawana Resources (ASX code: TAW). This week it begins testing the diamond content of gravels from an ancient watercourse below De Beers' fabulous Finsch diamond mine in South Africa's Kimberley.
Within weeks, the market should know how the punt turns out. If the project meets the widely held expectations of analysts, then Tawana at about $1 is selling for close to one-fifth of its projected net present value. If the gravels do not come up to expectations, then the stock will suffer a sell-off but will come again with several other promising projects to underpin its future.

We added Tawana to the portfolio (B, May 20) on the strength of a joint venture with BHP Billiton, which holds several prospecting licences within a 10,000 square kilometre area known as the Limeacre district in South Africa's diamond-rich Kimberley region. Lime­acre is a barren plateau capped with up to 30 metres of calcrete, which until recent times masked any indication of diamond source pipes beneath the cap. Although swarms of pipes exist around the plateau, so far only three have been found within it, and all by accident. They include two small clusters of pipes yet to be assessed within Tawana's own tenements on the western fringe which a water driller found. The third is De Beers' Finsch mine in the middle of the plateau which returns a net profit of about $US150m ($214m) a year. It was discovered by a group prospecting for asbestos. The mine opened in 1970 with an expected 70-year life.

In recent times, BHP Billiton entered the picture with its Falcon aerial technology, which can "see through" over-burden to bedrock, while simultaneously measuring gravity, magnetic and radiometric anomalies. BHP flew an area of 2800sq km within a 30km radius of the Finsch mine. It identified 25 highly prospective anomalies ­ranging from four to 12 ­hectares, plus a hidden alluvial target 2km wide by 7km long. Last year, Tawana was invited by BHP Billiton to earn a 30% interest in any of those ­prospects by drilling to ­identify the ­status of the anomaly.

Tawana went for the so-called Daniel alluvials prospect and earned its 30% by last April through confirming an ancient gravel channel prospective for diamonds after drilling about 6km south of the pipe. Leading South African diamond analyst James Picton, in a report for British stockbroker W.H. Ireland, has concluded that the project's "close proximity to the 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 present mine surface, precipitating some 2 ­billion tonnes of material or $US48m of ­diamonds over the surrounding area.

Tawana elected to lift its equity in the Daniel project to 40% by spending $200,000 to extract a minimum 500-tonne sample of gravels. So far the company has extracted 150 tonnes using a pair of percussion rigs able to cut 10.5-inch (26.7cm) and 6.5-inch diameter holes.

A dense media separation plant has now arrived on site that will begin processing the gravels this week at a rate of up to 60 tonnes a day before running the residual material through a Sortex plant to recover diamonds. Answers could emerge by late November.

In the meantime, the sampling program has identified the ancient riverbed to extend for 10km. There is a likelihood that a ravine cuts down at least part of the centre of the watercourse, which may take some of the gravels to a bedrock depth of 100m or more. On a more up-beat note, the gravels so far extracted are from sites 8km to 10km south of the Finsch mine. During November, samples will be take from sites within 2km to 3km of the mine.

By the end of November, it should be confirmed that Tawana holds a 40% equity and BHP Billiton, with 60%, must decide whether to proceed further. Once a decision to mine is reached, an already formed Black Economic Empowerment company may buy a 26% equity in the project at "fair" market value. Tawana already owns 26% of the BEE it helped form with the expectation it will lead to other opportunities.

Tawana's shares stood at $1.05 last week (with a year's high-low range of $1.13-40¢). The company has 50 million issued shares and 25 million options exercisable at 75¢ at any time before November 30, 2005. With $6.8m in net cash now, it could raise another $18.6m through its in-the-money options.


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