Of whisky and diamonds: John Teeling speaks
Mbongeni Mguni | Friday June 12, 2015 13:16
Getting into Botswana
“I came here in 2002. I had been working in Zimbabwe in gold but the business became difficult because of political uncertainty. I need as much certainty in an environment as possible because I take the risk in geology. I therefore moved with my highly trained people to the greenstone belt around Francistown.
I looked at three possibilities and believed they were poor. Gallery Gold later developed this!
Teeling’s modus operandi
“My two partners had three prospecting licences in diamonds and did not know what to do.
What I do is that if you have prospecting licences and don’t know what to do, I say: ‘I will fund your operations for one year. Put the licences into a new vehicle in return for a percentage of the shares and you will get funded.’
This is ultra-risky. If they find anything worth pursuing, I raise more money at a higher price, then in a couple of years, I try bring in a partner as has happened with De Beers and Alrosa. These are the big gorillas. They have the money and the technology that individual private investors cannot and should not raise.
I bring in the big guys and my share gets diluted. But by that point, the company is worth far more.”
The AK06 project (now Karowe Diamond Mine, owned by Lucara Diamonds)
“We (African Diamonds) put together a joint venture with De Beers and on the first hole that they drilled, they found AK06. That’s the type of luck that can happen to you once in a lifetime and I’m hoping lightning will strike twice.
It breaks my heart to see the large stones Lucara is mining there. I almost got sick in the conference room yesterday when Lucara was presenting, thinking, ‘I used to have 40 percent of that!’
Success has many parents, but failure is an orphan. De Beers has a policy that they take up a lot of ground and go through it very carefully. In 1968, they found an anomaly in that area and judged that it was not good enough and moved on. In the late 1990s, some people at De Beers looked at the area again.
We had lots of problems with De Beers because they did a great feasibility study, but it was very bureaucratic. They did a great job, but their strategy was wrong. They thought it was going to cost US$280 million to build the mine and that was nonsense. They were applying a discount rate of 17 percent per annum, which made everything not worthwhile. It should have been around eight percent.
We decided that De Beers had to go and we got the support of the then minerals permanent secretary, Gabaake Gabaake and the then minister, Ponatshego Kedikilwe. They both said Botswana wanted people to develop mines. Those two men are responsible for a lot of the new projects today run by Lucara, Petra Diamonds and Gem Diamonds. These all came out of forcing De Beers to sell.
That was a long battle. We were talking to a number of companies, including Lukas Lundin (Lucara chairman). Lucara was the only one which wasn’t messing about. Lucara wrote a US$50 million cheque to De Beers and in the meantime, we did our own feasibility using new technology, which brought the capital expenditure forecast down from US$280 million to US$95 million. We then went out with our consultants to raise the money. We had to raise 40 percent of that, under the agreement with Lucara.
I raised that in London and my consultants came back and said they forgot to allow for inflation and forex and therefore the capex was actually going to be US$110 million. If you go back to investors with changed figures, they think you are either stupid or crooked and as an Irishman in London, they would think you’re both!
Lucara did a very fair deal for my investors and they all got shares in the new company. My family and I also still have shares in that project.
I have to admit that I made a big mistake. Lundin had offered that I participate in the mine instead of taking the shares. Today, I could be holding 35 percent of Karowe. I sort of knew I had made a mistake at the time. Today, they produce some of the world’s largest stones. In the presentation today, the few stones in the hand in the picture are collectively worth P500 million.
Teeling and the Russians
I immediately moved on. Lucara passed nearby exploration assets to African Diamonds and we formed Botswana Diamonds. Every African Diamonds shareholder received shares in Botswana Diamonds.
We had two very good targets, but they both failed. Sometime before, I had tried to bring Alrosa (the world’s biggest diamond producer by volume) on board before the Lucara deal. It was a long courtship but we are used to this as the Irish and we again asked them to come on board with Botswana Diamonds.
We are the only private company that they have a joint venture with in the world. There’s a learning process of how they want to work with us. They are very efficient; in fact they make De Beers look like a sloth.
They move very fast. If they go through your ground and find nothing, they move on and quickly say ‘give it to someone else’.
They are very positive about our prospecting licence PL210, which is the big test for us. They will be drilling in the last quarter of the year. There’s an anomaly in PL210 that they are interested in. Another company drilled there before and found nothing, but there is a very clearly defined anomaly there.
They are using electrical impulses into the ground to generate a 3D map of what’s underneath. They brought people from Siberia and they are happy they have that anomaly and are going to drill there.
At present, my family and I own most of Botswana Diamonds. Alrosa is not in at that level. They are at a 50/50 joint venture for cooperation at the geological level. The detailed financial arrangements will come later.”
John Teeling’s beginnings in mining?
“I used to teach at a university in the United States and a very successful lead and zinc company in Ireland wanted to expand but were unscaled financially. There was something called ‘discounted cash flow’ and I was the only Irishman who could do it. I became involved with them in 1969 and I’m working from the same office in Dublin all these years later. I also still own an Irish lead and zinc mine.
It was only in 1983 that we started to go abroad from there. I quickly learnt the rules of exploration. I secured access through my activities in Ireland which were mainly around the stock exchange. I had done very well as a stock broker and built a good following.
I knew what exploration was and there were also unemployed Irish geologists and I found that I could raise high risk capital from my following.
We have a very good philosophy. We look for areas of low geological risk and we are able to take higher political risk. In Botswana, we have low geological and political risk. In fact, my two mineral discoveries have been in Ireland and Botswana.
We have had a presence in Iraq since 1997, are offshore in Ghana, were nationalised in Bolivia and are also in Iran where I’m hoping to get back to later this year. Iran is actually a good area geologically, but it’s under sanctions and I could be arrested.
Closing thoughts
It’s been a disastrous industry since the recession in 2009. There has been no money and my companies are down more than 95 percent. I’m poor. I’m not unhappy. I have done OK. Lots of worries and sleepless nights, but there have to be people like us.
We sell hopes not facts. Exploration companies are all about hope, romance and mystery. How does anyone know what’s down there? My shareholders don’t like hearing me talk like this!
However, things must be found.