willP on YPN and KRT
Pele Mountain gets encouragement from De Beers
Pele Mountain Resources Inc YPN
Shares issued 24,688,981 Apr 16 2002 close $.270
Wednesday Apr 17 2002 Street Wire
by Will Purcell
Pele Mountain Resources received the macrodiamond results from another
small mini-bulk sample this week, but the real news from the Wawa diamond
play might well be some promotable macrodiamond grade forecasts that were
prepared for the tiny but enthusiastic Canadian gem hunter by diamond
giant, De Beers. Although the latest sample produced another modest diamond
grade, the forecast by De Beers continues to dangle hope that an economic
diamond deposit can be found somewhere on Pele's property. Similar
prognostications by De Beers have resulted in promotions that have
successfully attracted the market's attention, and that could be good news
for Pele's shareholders, if Pele Mountain's president and promoter, Al
Shefsky, can follow suit.
The latest 10-tonne sample was collected about 75 metres from the site of a
100-tonne test, on the Cristal showing, which is on the southern portion of
the company's Festival property, just to the north of the GQ property,
owned by Band-Ore Resources. The sample was processed by Lakefield
Research, and 49 two-dimensional macrodiamonds, weighing 0.25 carat were
recovered, including one stone that weighed about 0.04 carat. The diamond
recovery results suggested a macrodiamond grade of about 0.025 carat, which
was similar to the result obtained two months ago, when De Beers processed
100 tonnes of Cristal rock, recovering 2.31 carats using a one-millimetre
minimum screen size, which indicated a grade of 0.023 carat per tonne. The
largest diamond recovered in the 100-tonne sample weighed 0.18 carat.
Although the latest sample included many diamonds that were smaller than
the minimum cutoff used in the De Beers sample, the result appears quite
comparable, as smaller samples would normally be expected to return
somewhat lower grades. In fact, the result from the latest sample was
pronounced by Pele Mountain's consultants to be similar to the earlier
work. Based on the 100-tonne sample, De Beers had modelled a grade of about
0.06 carat per tonne, down to a one-millimetre cutoff, and the latest
sample apparently continues to support that estimate.
The market seemed to shrug off the modest result, just as it had the
earlier sample. Pele Mountain's stock traded as high as 40 cents last fall,
but it has been slowly dropping since then, trading for about 25 cents of
late. The stock managed a three-cent jump Monday, closing at 28 cents, but
the news of the latest sample sent the stock a bit lower early in the day
Tuesday. Although investors seem to be unimpressed with the results, De
Beers remains sufficiently intrigued with the Festival property that it is
in talks with Pele Mountain about acquiring an interest in the Festival
play.
One of the reasons that De Beers remains interested in Festival may be the
result of its grade modelling exercises, based upon the microdiamond
content of some of Pele Mountain's tiny rock samples that had been sent for
caustic fusion analysis last year. De Beers reprocessed the data and
constructed curves of the total diamond content for each sample, coming up
with an estimate of the macrodiamond grade for each sample. That work
suggested that a few samples had a potential macrodiamond grade of about
0.20 carat per tonne, using a 1.5-millimetre cutoff.
It would certainly be big news if a Wawa mini-bulk sample were to actually
deliver such a grade, as such a deposit could potentially be economic, if
the value of the diamonds was high enough, and the size of the deposit was
sufficient to support a larger mine. So far, none of the Wawa mini-bulk
tests have come close to that figure however. The best of the lot was a
test completed last year by Band-Ore, which returned 0.607 carat, including
a 0.254-carat stone, from 12.5 tonnes of rock, which indicated a sample
grade of 0.05 carat per tonne, which is roughly double what Pele Mountain
has obtained from its samples. Spider Resources has also processed three
tiny samples from its property, located just west of Pele's ground. The
company recovered 20 macrodiamonds from about 7.5 tonnes of rock, although
the total weight of the diamond parcel was apparently not worth touting.
In any case, none of the samples from the Wawa area are sufficiently large
to produce a realistic indication of the diamond grade of the deposits.
That leaves speculators with the task of contrasting the tiny grades
produced by actual samples with the considerably healthier prognostications
prepared by diamond experts, such as De Beers. Of course, the rosy
forecasts by De Beers also carry a caution that they are based on very
small samples, but they could nevertheless provide some grist for Mr.
Shefsky's promotional mill.
It certainly has worked elsewhere. One long-lived diamond play has thrived
on rosy predictions of diamond grade, in the apparent absence of
corroborating sample grades, for more than a dozen years. Information and
hype first began to flow freely from the Fort a la Corne diamond play in
the mid-1990s, after Kensington Resources joined De Beers, Uranerz and
Cameco Corporation in the hunt. The promotion hit its stride early in 1996,
and by mid-spring, Kensington's shares peaked at $4.90. That gave
Kensington a market capitalization of about $70-million, and it implied a
project valuation of over $250-million, based on what was then a
one-quarter share for Kensington.
De Beers joined the Fort a la Corne play in 1992, and grade estimates
became a key part of the project. In 1992, the partners recovered about 9.5
carats from samples weighing in excess of 200 tonnes, which suggested an
average grade of about 0.04 carat per tonne. Nevertheless, De Beers
predicted that one of the samples had a grade of about 0.235 carat per
tonne. Other bodies were tested in the following years, with similar
results. Although the mini-bulk tests generally produced minuscule grades,
De Beers continued to forecast much rosier diamond contents for some of the
bodies.
The big Kensington promotion was kicked off early in 1996 with a plethora
of numbers from prior years, and some of the data were certain to catch the
market's eye. The company touted kimberlites with grades as high as 0.55
carat per tonne, based on caustic fusion analysis, along with a diamond
value as high as $184 (U.S.) per carat. With a potential value as high as
$90 (U.S.) per tonne, the 200-million-tonne No. 145 kimberlite would have
been big news, had subsequent testing confirmed the results of the tiny
samples. The mini-bulk samples did not support the inflated hopes of the
market, and the Kensington promotion ground to a halt, just short of the $5
mark.
By the fall of 1997, Kensington's shares had declined to about 30 cents,
and the company called in its own diamond expert to come up with an
optimistic prognostication. Antwerp-based Luc Rombouts suggested that three
of the kimberlites tested that year could have hopeful grades, based on
microdiamond recoveries. Mr. Rombouts predicted a macrodiamond grade of
0.11 carat per tonne for kimberlite 150, and a grade of 0.36 carat per
tonne for body 176, including a zone with a grade as high as 0.50 carat per
tonne. Mr. Rombouts said that a third body, No. 220, appeared to have a
grade of 0.25 carat per tonne. The subsequent macrodiamond recoveries
failed to live up to those hopes however. A 60-tonne sample from kimberlite
150 produced a grade of less than 0.01 carat per tonne, and a 43-tonne test
from body 176 returned a grade of just 0.03 carat per tonne. The best of
the results came from kimberlite 220, which produced a grade of 0.05 carat
per tonne. The Saskatchewan diamond play had a few rough years in the late
1990s, but speculative interest in the region east of Prince Albert began
to grow in 2000, as De Beers appeared to regain enthusiasm for the project.
Although the initial promotion based on microdiamonds had collapsed, a new
and improved version is now under way, and the market continues to be
willing to place its faith in grade forecasts for the Fort a la Corne
pipes, at least when the guesses are prepared by De Beers. The partners
took larger samples from two pipes in 2000, both of which it believed had a
healthy diamond size distribution curve. A 328-tonne sample from kimberlite
122 produced a grade of just 0.05 carat per tonne, while a 250-tonne batch
from body 141 produced a grade of just over 0.08 carat per tonne. Despite
the modest recoveries, De Beers actually upped its forecast for the two
kimberlites. The company inflated its forecast for 122 from 0.09 carat per
tonne to as much as 0.16 carat per tonne, while the grade for kimberlite
141 grew from 0.14 carat per tonne to 0.20 carat per tonne.
De Beers also prepared a forecast of the diamond value from the two
kimberlites, which sparked a bit of interest. De Beers suggested that the
diamonds from kimberlite 141 could have a value as high as $173 (U.S.) per
carat. All that suggested that the rock contained in the mammoth No. 141
kimberlite could be worth as much as $30 (U.S.) per tonne, or even a bit
more.
With none of the mini-bulk tests quite living up to the predictions, it
would be easy to write off all of the diamond grade and value forecasts as
unrealistic attempts at promotion, but De Beers itself would seem to be a
big believer in the technique, and the company continues to throw
significant amounts of cash at the project as a result. The company went
back to the Fort a la Corne area again last year, collecting a still larger
sample from kimberlite 141. The results from that work are not yet
available, but Kensington and the Fort a la Corne play got a big boost from
an unexpected source late last month, when John Kaiser jumped onto the
Saskatchewan bandwagon, largely due to the modelling work by De Beers. Mr.
Kaiser suggested that Kensington's shares could make another run at the $5
mark, and Kensington's promotional machine shifted into overdrive, in an
attempt to quickly prove him correct.
Kensington's shares peaked at $2.36 in late March, and the stock currently
is trading for about $1.70, as the market waits to see what the latest
samples bring. At its recent high, Kensington had a market capitalization
of about $100-million, and with its 42.25-per-cent stake, the Fort a la
Corne play had a value of more than $230-million. By comparison, little
Pele Mountain is a mere molehill, with a market capitalization of less than
$7-million.
Nevertheless, De Beers appears to have enough interest in the Wawa play to
talk about a deal with promoter Shefsky's molehill. The company has been
paying for much of Pele's exploration, with no real strings attached, and
it now appears that De Beers may be willing to keep paying the bills in
exchange for a stake in the project. Mr. Shefsky heaped platitudes upon De
Beers, adding that Pele Mountain would be willing to give up a share of the
project, if the terms of a deal warranted such a step, but he added that
his company had the right to negotiate with other companies as well. That
could be one reason why De Beers is interested in formalizing its
arrangement with Pele Mountain now, as better sample results in the future
might bring other suitors banging on Mr. Shefsky's door.
Deal or not, Pele Mountain's Festival play should have a busy year. The
company is expected to continue collecting small mini-bulk samples from its
various showings, as well as continuing the hunt for additional outcrops of
diamondiferous rock. If the company does come to terms with De Beers or
another major, the sample sizes might grow to about 100 tonnes, and a
number of smaller batches of rock would almost certainly be sent for
caustic fusion analysis. Caustic work is quite expensive, but the
microdiamond results provide a considerable amount of information to a
company such as De Beers. As a result, De Beers has already collected
nearly 500 kilograms of rock, which is being processed for microdiamonds.
Pele Mountain did not say from where those samples were collected, and Mr.
Shefsky declined to say which of the tiny samples had produced the best
grade forecasts, but it seems likely that De Beers would collect a number
of additional batches of rock from the more prospective sites that were
tested last year.
It seems likely that at least one of the better samples came from Cristal.
A total of 171 kilograms of rock was processed for microdiamonds, but one
16-kilogram batch produced 30 per cent of the diamonds that were large
enough to remain on a 0.425-millimetre screen. A second, batch produced
nearly as many larger diamonds, and combined, the 32 kilograms of rock
accounted for more than half of the larger diamonds at Cristal.
As well, the large Dom Perignon occurrence, near Perch Lake, produced a few
samples that may have caught the eye of De Beers. A total of 100 kilograms
of rock were processed, but two batches weighing a total of 15 kilograms
produced some larger stones, including two of the tree diamonds that were
large enough to remain on a 0.6-millimetre screen. Meanwhile, two tiny
samples from the Moet showing produced a modest collection of tiny
diamonds, but a better proportion of larger stones. It is possible that De
Beers went back to that area as well when it was collecting additional
samples.
If any of the latest samples produce encouraging microdiamond counts,
larger samples will likely be collected to test the macrodiamond content at
those sites. Regardless of the actual numbers, if any of the modelled
results support a healthy grade and value forecast, the market might
suddenly take notice of Pele's Wawa play, as it has the Fort a la Corne
project. Pele Mountain closed down one cent Tuesday, at 27 cents.
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