March 12,2001 From the Kaiser Report
Manitoba Diamond Play Heads Up
I promised in Kaiser Express 2001-01 that I would keep my eyes and ears open for signs of an
emerging area play and I now want to give a heads up on the buzz developing around the
Manitoba Diamond Play. No significant diamond discovery has yet been made, not even a
kimberlite has been discovered. None of the juniors that have plugged themselves into this play
have undergone any meaningful volume or price spikes, but my analysis of the situation tells
me we are getting close to a breakout in market action. Most of the juniors are dumpster style
bottom-fish, but a few have other stories on the go that can carry the market if the MDP is a
non-starter or goes into hiatus this summer. For those of you who relish extreme
bottom-fishing, you may want to take a look at some of these MDP juniors. Two key project
areas controlled by Rio Tinto and BHP on which indicator mineral sampling was conducted the
past couple of years will be drilled between now and spring thaw in late April. Confirmation of a
kimberlite discovery should create a market blip during this period given the strong diamond
potential implied by the indicator mineral chemistry. Micro diamond counts from caustic fusion
of kimberlite core are not likely to arrive before May when the drilling season is over. The
combination of a kimberlite generated by a geophysical anomaly and good micro diamond
counts would kick off a speculative frenzy similar to what engulfed Ashton and the Alberta
Diamond Play in 1997, though I dare say the rewards will resemble more the Slave Diamond
Play kicked off in November 1991 by Dia Met. Summer work by the satellites would involve
indicator mineral sampling and airborne geophysics followed by a drill program when the ground
is frozen again in early 2002. Unlike the ADP, which was handicapped by a younger
Proterozoic terrane called the Buffalo Head, the MDP is underlain by a deep keeled Archean
aged craton that is the western extension of the Superior Craton and which some believe to be
a distinct craton welded onto the Superior. This play has full support from the Manitoba
government and the Manitoba Geological Survey, and has already garnered attention from the
Canadian national press. I am giving my readers a heads up on the Manitoba Diamond Play
because it has the smell of the Slave Diamond Play in 1991 before Dia Met and BHP
announced the first micro diamond results for their Point Lake kimberlite discovery in November
1991. This is not a signal to rush out to buy members of the MDP, just an early warning to be
aware of this play and its players. To help my readers get up to speed on the Manitoba
Diamond Play I have prepared a buzPak that I have stashed in the Diamond section of the
Kaiser buzPak Library at library.canspecresearch.com. I will be updating the Manitoba
Diamond Play buzPak as I track down new information. This buzPak contains links to key sites
in the Manitoba Resources Division web site, information about the participants, and property
maps. Those of you who have not downloaded PlanBee and learned to use it can go to Meteor's
buzPak library at www.thoughtshare.com where you can tour the buzPak online without
installing PlanBee. The rest of this Express provides a broad overview of the Manitoba Diamond
Play. The primary land holders in the MDP are Rio Tinto (Kennecott), BHP and De Beers, who
together control 1.7 million hectares (4.3 million acres) out of 3.3 million hectares (8.4 million
acres). Since map staking reopened on October 31, 2000 about 3.2 million hectares have been
staked, with nearly a million since late January by juniors and prospectors. It will not surprise
me if another 3 million hectares are staked to blanket the entire Manitoba portion of the
Superior Craton by the time map staking closes on April 30. Don't worry if this feels like deja
vu. There are indeed some similarities between the Manitoba Diamond Play and the Alberta
Diamond Play, but also some important differences. Many of the juniors are refugees from the
ADP: Arctic Star (Montello), New Blue Ribbon, New Claymore, Marum and Troymin. Others are
backed by groups which were involved in the ADP, such as Iriana, whose consultant Jim
Dawson was a driving force behind the ADP foray of Lucero, Meteor and Primero. On the other
hand, Ashton has no land in Manitoba, but be forewarned that Ashton is lurking not too far off.
This 65% owned subsidiary of Rio Tinto has been busy with a regional program on the Ontario
side of the border. Canabrava and Navigator, arguably the top junior explorationists on the
Superior Craton, have also been busy in northern Ontario where they are drilling geophysical
targets in the Frontier project along a 40 km stretch between the MDP and the James Bay
Lowlands. The MDP covers the western extension of the Superior craton that wraps around
Hudson's Bay through Ontario into Quebec. There is some speculation that the western part of
the Superior Craton is a separate sub-craton welded onto the Superior Craton. The Superior
Craton, the largest Archean craton in the world, was the primary focus for diamond exploration
in Canada prior to the Lac de Gras discovery on the smaller Slave Craton in Canada's north, but
the Superior craton has never yielded an economic pipe. This stigma may soon be washed
away. Two years ago De Beers revisited its Victor pipe in the James Bay Lowlands and
concluded that this very large pipe (18 ha) may have economic potential. This multi-phased pipe
lacks the classical G10 chemistry of important pipes and may be similar to the large, eclogitic
diamond loaded Orapa pipe in Botswana. The rumblings are that De Beers is close to
completing a feasibility study. If De Beers were to declare the Victor pipe economic, it would
legitimize the Superior Craton's diamond potential in the eyes of the market. Diamond
exploration in Ontario (Canabrava/Kennecott) and Quebec (Majescor/Ashton) has yielded very
good pyrope chemistry (G10's), but overall, probably thanks to complex glacial history, poor till
cover, and noisy magnetic background, no significantly diamondiferous pipes have yet been
found apart from the Victor pipe. The region targeted by the MDP, in turn, has had no focused
diamond exploration at all until recently. It has had a couple waves of regional heavy mineral
sampling in the past following the Thompson belt nickel discovery during the fifties, such as the
BRGM/Aquitaine collaboration during the sixties, but like similar sampling forays on the Slave
craton by the government geological survey and De Beers no kimberlite cluster was ever found
and documented as such. Five years ago the Manitoba Geological Survey through Mark
Fedikow and Eric Neilson initiated a multi-media regional sampling program. Initial results
highlighted the Fox River Sill, a layered intrusive at the suture between the "Northern Superior
Province" and the Proterozoic Trans-Hudson Orogen. Falconbridge promptly staked a 287,000
hectare block in 1998 to cover most of this complex to lock up its PGM potential. Indicator
mineral surveys covering the area between Oxford and Knee Lakes revealed an abundance of
heavy minerals indicative of not just kimberlite, but potentially diamondiferous kimberlites. I say
"potentially" because as the Tanzanian experience demonstrated, until you know the craton
has a diamond population in its stability field, G10 populations don't mean a thing. G10 garnets
simply co-exist in the same temperature-pressure regime as diamonds; neither plays a role in
the formation of the other. There have been no reports of micro diamonds found in Manitoba till,
the best diamond indicator mineral of all. At this stage that is not a concern because micro
diamonds were not found in Slave Craton till until after diamond pipes were discovered.
Thickening of the western portion of the Superior Craton intrigues the experts
The Manitoba portion of the Superior Craton has also attracted the attention of diamond experts
like Kennecott's Buddy Doyle because lithoprobe work indicates a thickening of the crust, a
condition deemed to be good for diamond potential. Geophysicist John Buckle recently offered
me his speculative interpretation that the MDP "sub-craton" has a keel with a northeasterly
orientation. A thick keel is believed to come into existence through a process called
"under-plating", an ancient variation of subduction that enabled thin oceanic crust to slide
underneath continental crust where the basaltic material stacked up like pancakes.
Under-plating is believed to be the mechanism by which organic carbon ended up deep inside a
craton. It explains why younger eclogitic diamonds (defined as such by the presence of carbon
isotopes whose origin implied exposure to sunlight-ie carbon dioxide absorbed by
micro-organisms such as plankton that settled onto the ocean floor when they died) appear to
have a deeper mantle source than older peridotitic diamonds formed from primeval crustal
carbon. Pyrope chemistry (G10's) is associated with peridotitic diamonds. A thick cratonic keel
implies not just the possibility of an ample supply of organic carbon for the diamond factory at
depth, but it also makes the craton cool and stable. In other words, the diamond stability field
required for the formation and continued existence of diamonds will have a large range that is
less vulnerable to thermal plumes that heat the crust and convert diamonds back into graphite.
Most important pipes are less than 400 million years old, with the key Slave craton pipes dated
60-80 million years old. Diamonds are typically a billion years or more older. By the time a
kimberlitic magma arises from the mantle and passes through the diamond stability field, if it is
to pick up any diamonds along the way, they will have had to sit there undisturbed for a very
long time. To make a long story short, evidence of a thick keel is good news for diamond
exploration.
Manitoba Diamond Play is being generated by indicator minerals
The evolution of the Manitoba Diamond Play resembles more that of the Slave Diamond Play
than the Alberta Diamond Play because it is starting with indicator mineral chemistry and
graduating to geophysics based pipe targeting. The ADP evolved in 1997 thanks to an oil
geologist who followed up curious magnetic anomalies that Ashton drilled and confirmed as
kimberlites. The ADP play met with skepticism for two key reasons. One was the paucity of
diamond indicator minerals produced by a regional heavy mineral sampling program conducted
by the Alberta Geological Survey. The other was that the ADP centred on a Proterozoic aged
basement of accreted terranes called the Buffalo Head, which violated Clifford's Rule that
economic pipes are predominantly found on older Archean aged cratons. The problem with
these two complaints is that Ashton's Alberta kimberlites contained diamonds, not just micro
diamonds, but commercial sized gem quality stones. Furthermore, almost all the 36 kimberlites
found so far are diamondiferous. The bad news for the ADP was that Ashton Mining of
Canada (ACA-T: $0.94) has not yet identified a pipe with an economic combination of grade,
size and value. Although Kennecott/Montello found kimberlites on their Legend block, they were
barren or marginally diamondiferous. The area play collapsed in 1999 because no flagship
discovery emerged. Ashton's K252 pipe, from which a 20 tonne mini bulk sample is being
extracted right now, is the most promising pipe so far. Unfortunately, delineation drilling
indicates a surface area of about 2 hectares, which implies a small pipe with tonnage in the
5-15 million tonne range. This kimberlite has good stone size distribution, but the grade is likely
to be less than 1 ct/t based on comparison of initial micro diamond data with that of higher
grade kimberlite such as Snap Lake and Kennady Lake. The economic hope will lie with the
value of the K252 stones, and in this regard there is reason to be optimistic. A 1.28 tonne
sample yielded 0.85 carats caught by an 0.8 mm screen, including a colourless 0.36 carat
stone. The general quality of the K252 stones so far is distinctly better than that of K14 on
which the market had pinned its hopes during the ADP's heyday. Good news from Ashton's
K252 pipe would not likely revive the ADP. Ashton's exploration activity has narrowed down to a
fairly small window within the original Buffalo Hills claim block where all the pipes have been
found. The view that seems to be emerging in the Ashton camp is that this area is underlain by
a chunk of older Archean crust digested by the younger Buffalo Head terrane. This means that
the ADP's potential is constrained to a fairly small window completely controlled by Ashton.
The game for Ashton in northern Alberta is to track down the one pipe in a hundred within its
cluster that is economic; if there is anything there, Ashton got it all and there is no potential left
for an area play. In this regard the MDP differs from the ADP. When the Slave Diamond Play
erupted in 1992 Chuck Fipke pronounced that Dia Met had "got it all". This proved to be
incorrect. The lucrative Diavik pipes were found on claims that Aber sandbag staked on the
peripheries of the Ekati project. Since then potentially economic diamond pipes have been
found large distances from Ekati: Snap Lake, Kennady Lake and Jericho. New exploration
hotspots on the Slave craton are now emerging even farther from Dia Met's ground zero. The
important point here is that the Slave Craton meets all the geological criteria for a world class
diamond factory. So far the evidence for the Manitoba Diamond Play is encouraging. The
Archean age of the craton is not disputed, the western portion of the Superior Craton may be
thicker than the rest of the craton, and a multi-media regional sampling program started by the
Manitoba Geological Survey in 1996 has yielded strong and widespread indicator mineral
evidence of not just kimberlites, but diamondiferous kimberlites.
De Beers' staking strategy in the MDP has the smell of panic
One might think that early birds Rio Tinto, BHP and De Beers got it all in Manitoba, but the
truth is that indicator minerals are spread over a very large area, sampling density was low, and
sampling conditions were very poor in this terrain. In addition, the map staking history hints at a
panic driven strategy of blanket staking and sandbagging based on awareness of general
potential but little knowledge of specific potential. All three majors conducted regional indicator
mineral sampling prior to applying for claim permits. Geophysics has only recently come into
play; the juniors involved with Rio Tinto and De Beers have announced geophysical targets that
will be drilled over the next six weeks. In the case of Rio Tinto (Kennecott), some of the
anomalies suggest large pipes if that is what they are. Except for De Beers' initial James Bay
Lowlands drilling campaign which picked off geophysical anomalies with little local support from
indicator minerals, using geophysics as a targeting tool has not worked very well on the
Superior Craton. This has also been the case in much of the Slave Craton, where geophysics
worked well without indicator mineral pinpointing mainly in the area around Lac de Gras. A big
question for the MDP is whether or not geophysics will be effective in pinpointing pipes. The
density of sampling so far appears to have revealed only vague, fuzzy heads for indicator
mineral dispersion trains. If Kennecott and BHP can rapidly convert their geophysical targets
into pipes, it will demonstrate the viability of geophysics as a targeting tool. This is important for
the ability of the MDP to turn into a hot area play. Drilling in this area is only feasible during
winter and early spring while the ground is frozen. Beyond May the only work the juniors can do
is indicator mineral sampling and airborne geophysics. Indicator mineral results from this
summer won't be available until winter. The spacing of the samples will not be small enough to
pinpoint targets on the basis of till sampling alone. If geophysics cannot take care of the "last
mile", the juniors will have to do another summer of sampling next year before they have decent
drill targets in early 2003. This market does not have the patience for such an extended timeline
for information flow capable of confirming a discovery. Express 2001-02 is a heads up to be
aware of this play, become familiar with the participants, and be ready to act quickly and
knowledgeably if Kennecott and BHP starting hitting kimberlites. It is unlikely the first
kimberlites will be economic winners, as was the case with Dia Met's Point Lake pipe. Their
significance will be the impetus they give to the MDP.
New Blue Ribbon options BHP's MDP claims
Last week one of my ailing bottom-fish, New Blue Ribbon Resources Ltd (NBL-V: $0.18),
announced an option to earn a minority interest in BHP's two earlybird claim blocks totaling
240,000 hectares. BHP started regional sampling in 1997, and staked its four permit blocks on
November 1, 1999. (The permit map staking season in Manitoba runs from October 31 until
April 30. Traditional post staking can take place year round.) BHP has apparently spent $4.5
million on its Moose Project collecting and evaluating 3,000 till and stream sediment samples.
This sounds expensive, but a good part of the cost is due to the need for auger drilling in order
to get through a clay layer that masks the basal till that contains indicator minerals. The burst
of sampling activity during the past few years has been attributed to a breakthrough sampling
technique developed by the Manitoba Geological Survey that reduces the cost of collecting till
samples in this area. BHP's work yielded a "significant population of G10 pyrope garnets,
diamond inclusion chromites, chrome diopsides, eclogitic garnets, high-magnesium
picroilmenites, and olivines". Two stream sediment sampling locations yielded very large
numbers of indicator minerals. BHP has conducted an airborne geophysical survey over the
entire project area and identified 17 high priority magnetic low or high anomalies that it plans to
follow up with ground geophysics and drilling if justified. BHP is the most paranoid of the
diamond exploration majors. The disclosures it allowed Dia Met to make during the evolution of
the Ekati project were minimalist and in some cases downright misleading. BHP still reports
macro diamond counts according to the bogus 0.5 mm in one dimension definition. In the case
of Dia Met the major could perhaps justify its poor disclosure record by arguing that it was
operator and paying for the exploration. Dia Met did not need to raise money to carry on
exploration, and consequently did not need to provide investors with geological arguments as to
why it deserved their investment dollars. The early stage Dia Met investors made money
because they relied on blind trust and intuition, not analysis of geological information. So, given
BHP's paranoia about competitive secrecy, why has it done a deal with a relatively weak junior
like New Blue Ribbon which is going to have to show the market lots of information if it is to
raise the $3 million it needs to vest for a 40% interest?
Why would BHP farm out a good project to a junior after spending $4.5 million?
My initial reaction was that this deal signaled BHP's disappointment over its MDP project, and
that it was dumping into a junior's lap the final cost of hammering the nails into this project's
coffin. After all, why would a major let a junior in the door by funding an $820,000 drill program
designed to test high stakes diamond pipe targets generated through $4.5 million of grassroots
exploration? If this project has the potential to be another Ekati, such a deal sounds downright
stupid or a vote of non-confidence in the MDP. But after closer analysis of the deal and BHP's
internal circumstances, the deal is neither stupid nor a vote of non-confidence in the MDP. First
of all, BHP has drastically cut back its worldwide exploration staff from 360 people to 120, and
reduced its exploration offices from 40 to 3. BHP won't admit it, but I suspect that the MDP
project got caught in general budget cutbacks. On the surface the New Blue Ribbon deal looks
generous to the junior, but it isn't so. New Blue Ribbon must spent $2,050,000 by November 1,
2002 in order to vest for a 30% working interest. At that point it can choose to boost its interest
to 40% by spending an additional $1,000,000 by November 1, 2003. If New Blue Ribbon
chooses to stay at 30%, BHP can elect to assume 100% of all expenses needed to produce a
feasibility study and in doing so reduce New Blue Ribbon to 15%. If New Blue Ribbon vests for
40%, BHP can do the same, except this time it reduces New Blue to a 20% interest. BHP will
obviously make this decision to dilute New Blue if the next $3 million produces diamondiferous
pipes. Throughout the deal BHP is operations manager, which means that it makes all the
exploration decisions. The downside from this provision is that it may limit the ability of New
Blue Ribbon to accelerate exploration in a non-cost effective manner that is designed to assist
with promoting the play and raising funds. So how much has BHP really given up? It maintains
control of the project. It gets the next $3 million in exploration at a maximum dilution cost of
20% for its stake in the project. Unlike the Dia Met deal, or ones that De Beers has done with
Mountain Province and GGL, New Blue will have to come up with its 20% share of project
financing. And BHP gets lots of noise made about the project if it starts to connect, noise that
might put BHP's newest Canadian diamond project onto the radar screens of the brass at head
office.
BHP's MDP could be an Ekati style home run for New Blue Ribbon
My primary concern is with BHP's stinginess regarding disclosure. But, to be really cynical, the
lack of detailed disclosure will allow lots of hype and rumours to swirl around the Moose
project, just as it did during the early days of Dia Met's Ekati project. BHP has got itself
something of a devil's bargain which will compel it to make better diamond project disclosures
than it has historically done. What about the ability of New Blue's management to extract
disclosure from BHP? The board was strengthened in January with the appointment of Roger
Morton, an academic with a flair for explaining geological concepts to lay people. Morton has a
talent for rousing a crowd, and judging from the sort of information BHP has generated about
the Moose project, Morton will have plenty of ammunition to talk up a storm about the MDP.
New Blue Ribbon was a heavy trader last year and has a messy structure which is perfect for
this type of project. You can buy and sell size in this stock. The company had been spending
its efforts on the Alberta Diamond Play and I had pretty much given up hope for t |
