Bottom-Fish Comment - July 19, 2012: Bottom-Fish Strategy for Tsodilo Resources Ltd
Tsodilo Resources Ltd was recommended a top priority bottom-fish buy in the $1.01-$1.25 range on July 13, 2012 because the junior's decade long efforts in Botswana are on the threshold of finally rewarding shareholders with high impact discoveries. Tsodilo is seeking to raise $5-$10 million for systematic delineation of a multi-billion tonne iron deposit within the 40 km long Xaudum belt of Rapitan style iron formation. Currently it has its 2 rigs working, but wants to expand the program to 10 rigs. Two hotspots with continuous high grade potential have been identified at the northern and southern ends of the belt. This is a Big Anomaly already confirmed as a major new discovery which Tsodilo hopes to sell to a Chinese company for development once it has produced a 43-101 resource estimate; both the IFC, which has financed Tsodilo, and the Botswana government, which is eager to diversify its dependency on diamond production, are keen about the Xaudum iron story. The location in northwestern Botswana in the Tsodilo Hills is such that development and construction of rail and power infrastructure would not impact the Okavango Delta and River. Tsodilo is also negotiating with various majors for a farm-in deal on the Central Shale Basin to the southwest of the Xaudum belt where it has confirmed the geological setting for stratiform copper-cobalt deposits similar to that of the Copperbelt in Zambia and Congo. The junior first came to this realization in 2010 when the stock ran to $2, but its drilling strategy has been biased by its focus on diamond exploration which favors discrete geophysical targets. No drill results have ever been reported, but the company has confirmed the presence of copper sulphides. The story started to gain traction in 2011 after it came to the attention of Dr Murray Hitzman from the Colorado School of Mines who is an expert on IOCG and other copper systems. He was so intrigued by the prospect that Tsodilo had stumbled on a potential clone of the Copperbelt that he joined the board in July 2011 and has provided the geological expertise needed to whip this story into an intelligible form. His role as a consultant to major African miners has also connected Tsodilio's story to an audience which is very eager to have a copper development play in a country that does not present the headaches of Zambia and Congo. Shifting exploration responsibility for the Copperbelt story into the hands of a major would greatly enhance the prospect of Tsodilo turning into a double-digit buyout.
Tsodilo's problem in the past has been a management team dominated by lawyers which lacked in-house expertise in geology, optimizing exploration strategy, and marketing the story to the investor community. Instead we had an obsessed Washington DC based lawyer called James Bruchs running geophysical surveys and drill programs with the company rig while relying on academics and South African consultants to interpret the mountain of data. Tsodilo was the diamond exploration arm of the Trans Hex Group during the diamond boom of the nineties, and when Trans Hex pulled the plug on Tsodilo, Bruchs found himself holding an empty bag into which he had stuffed so much personal money that he took over the company. Since then he has raised money from his circle of Washington contacts to pursue the source of the Omatako diamond indicator mineral anomaly in Namibia which he believed emanated from the Tsodilo Hills area of Botswana via paleo drainage systems. Tsodilo owned the Nxau Nxau kimberlite field found by Ashton which was not the source because the pipes are barren, but Bruchs pursued the theory that an older generation of pipes was present which might be diamondiferous. In 2004 he did find pipes that were considerably more indicator mineral rich, but micro diamond results were disappointing. Furthermore, the general location on the edge of the craton ruled out the use of pyrope garnet chemistry as an analytical tool; craton edge pipes like Orapa do not have the chemistry associated with the Omatako garnet anomaly. Bruchs used extensive geophysical surveys in his quest to find other kimberlite targets, and gradually this largely Kalahari Sand covered region apart from the outcropping Tsodilo Hills began to reveal a previously unrecognized magnetic complexity that prodded Bruchs to apply for metal licenses around 2007.
Watching Tsodilo over the years has been frustrating because the geology has never been presented in a conventional manner that the street can appreciate, and Bruchs has managed the story in a perpetual "just around the corner" style that does not seem to have bothered the placees who funded the company during the past decade and who seem content to hold forever. But with a shift from a semi-private company in the works, Tsodilo, which has only 31.6 million shares fully diluted, is on the threshold of acquiring a much higher market profile with funding to match the large scale of its Big Anomaly plays in Botswana, namely the conceptual Copperbelt story and the already concrete magnetite iron story.
*JK owns shares in Tsodilo Resources Ltd