Tsodilo Resources (January 2016 Update)

| About: Tsodilo Resources (TSDRF)


No longer a partnership holding.

No tangible progress on copper front.

Flagship asset is now BK16 diamond project.


Featured In: July 2014

Partnership Average Cost per Share: $0.86 CAD

Exit Price: $0.71 CAD

In Q4 2015, the Partnership liquidated its stake in Tsodilo Resources. We ended up losing 17% on this position, which we held for roughly 4 years (first TSD purchase was in late 2011). While the loss is regrettable, we know from experience that the vast majority of junior mineral explorers did significantly worse over the same period. So in some ways I feel fortunate, despite the fact that Tsodilo's fortunes did not play out as was hoped.

The reason we decided to liquidate is simple. In the last semi-annual letter, I stated the following:

While it is clear that Tsodilo's diamond development activities at BK16 have the potential for significant value creation, it is important to reiterate that the Partnership is invested in TSD for exposure to FQM's copper exploration. If FQM doesn't find anything and gives up on Botswana in terms of copper, then it is highly likely that we will liquidate our Tsodilo position. The beauty is that the diamond development at BK16 provides a margin of safety in the case of a copper failure; and additional upside in the case of a FQM success.

Sure enough, even though it's been nearly 3 years since Tsodilo first signed their copper JV with First Quantum Minerals, there has not been a single result reported. This leads me to believe that one of two scenarios has transpired: (1) First Quantum drastically reduced funding to this JV due to an internal cash crunch BEFORE they were able to test their copper hypothesis or (2) First Quantum did a round of exploratory drilling and did not find what they were looking for. Either way, I saw no indication that progress was being made on the copper front and, as I've stated from day one, this copper opportunity is the reason we purchased TSD shares to begin with.

All is not lost for remaining Tsodilo shareholders, but this is now strictly a diamond story. The company continues to make progress with their BK16 project - within the past half year, the company released a new geological model for BK16, raised a private placement, and added a diamond expert to their board of directors. Key risks in 2016 include TSD's thin working capital position and the "cooling off" we are seeing in the Botswana diamond market. At current TSD share prices, there may be an opportunity for diamond speculators, but we will leave this opportunity for others.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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