Thought it should also be posted here. Thanks again, great read!!
Winspear's "geofantasizing" may continue
Winspear Resources Ltd WSP
Shares issued 39,238,388 Jun 21 close $3.57
Tue 22 Jun 99 Street Wire
BULK SAMPLE'S QUESTIONS AND ANSWERS
by Will Purcell
Winspear Resources Ltd. has now released the much-awaited diamond recovery
results from the first of two 3,000-tonne samples, extracted earlier this
spring from the northwest peninsula of Snap Lake. The results answered some
of the questions surrounding the project, but also served to generate a few
new ones.
A total of 3003.9 dry tonnes of kimberlite were processed at the Tahera
diamond recovery plant at the Lupin mine site of Echo Bay Gold Mines. A
total of 5,542.27 carats were recovered, with a resulting grade of 1.845
carats per tonne. A total of six diamonds weighing in excess of 10.8 carats
were recovered, the largest weighing 14.3 carats. The company revealed that
a total of 88 diamonds weighing in excess of three carats were recovered.
The parcel held a total value of $545,000 (U.S.), and the average value was
a respectable $98.42 per carat. The ore had an overall value of $181.58
(U.S.) per tonne.
This sample was extracted from an area adjoining the site of the first pit
from which the first of two 100-tonne minibulk samples was extracted and
processed last year. The results from the first pit indicated a grade of
only 0.848 carats per tonne. Steve Swatton, a Winspear geologist in charge
of corporate development, indicated that the largest stone in this 100
tonne sample weighed 6.4 carats. As well, a second stone was recovered that
weighed in excess of three carats. Based on this information, the latest
results represent something of an improvement over the first pit results
from last year.
The sharp increase in reported grade came as a shock to some. At the time
the minibulk results were released last year, Winspear indicated that
contamination by host rock was a significant problem in the sample from the
first pit, artificially reducing the grade, however other factors appear to
have contributed to the increase as well. The complete 200 tonne minibulk
sample recovered only 1387 diamonds, or an average of seven stones per
tonne, whereas caustic fusion analysis of kimberlite taken from drill holes
on the northwest peninsula indicated that nearly 44 diamonds were recovered
that were sufficiently large so as not to fall through a 1.18-millimetre
square mesh. The screen cutoff for diamonds recovered during the current
bulk sample is approximately equal to this size. As a result, it would be
expected that many more small diamonds would be recovered.
If indeed thirty such small stones were indeed recovered during the bulk
sample, they would contribute approximately 0.4 carats per tonne to the
reported grade of 1.845 carats per tonne. These small stones would have
little or no commercial value, hence the reported value per carat for the
latest bulk sample could be considered to be low, as compared to the
earlier minibulk results. An approximate commercial value of $125 per carat
might realistically be inferred from the latest results.
In response to the question of small stones causing much of the increased
grade, Mr. Swatton responded, "Yes, that is what we think". He indicated
that the plant appeared to be much more efficient at small diamond recovery
than was the Diavik plant, which was used last year. The plant was also
kind to larger stones, apparently. Mr. Swatton said that breakage of
diamonds during the recovery process did not appear to be a problem,
although further study was required to answer this more definitively.
Mr. Swatton declined to comment on whether the overall quality of diamonds
equaled last year's results, but he did state that "There was a high
proportion of high quality stones in the sample." He noted that the six
stones larger than 10.8 carats were all "special stones". A special stone
is a diamond that exceeds 10.8 carats, and possesses sufficient quality
that it would be cut.
Mr. Swatton said that the company was pleased with the high number of
diamonds that were recovered in the two to four carat size range. He stated
there currently is a shortage in this size category; a size commonly cut
for stones used in wedding rings.
Questions about fancy diamonds have arisen since Winspear first announced
in 1997 that a small percentage of diamonds recovered by caustic fusion
were coloured green and pink. Mr. Swatton said that this was a natural
occurrence for many diamond populations. He indicated that "not all of the
stones were white", but added that any coloured stones recovered were
insignificant. Winspear president, Randy Turner has repeatedly said that
the value of the Snap Lake deposit would lie in clear, white, gem quality
diamonds. This appears to be confirmed by the recent results.
The second 100 tonne minibulk sample taken last year contained a higher
grade, larger diamonds, and a much higher overall value per tonne than did
the sample from the first pit. Some estimates indicate that 75 per cent of
the total value came from diamonds recovered from this second pit. If so,
the value per tonne may have exceeded $500 (U.S.) per tonne. Two
particularly high quality gems were recovered from this second sample, one
weighing 10.82 carats, and the other 8.4 carats. A total of 17 diamonds
with a weight greater than one carat were recovered from the second pit, as
opposed to only eight such stones from the first pit.
Results from the next 3,000 tonne bulk sample are expected in mid to late
July. The kimberlite for this sample was extracted from an area adjoining
the much higher valued second minibulk pit. Mr. Swatton stated that the
company expected a slightly higher overall value from the next sample, due
to its proximity to the second pit. He said there was no geological reason
to assume that either of the two minibulk pits better represented the value
of the dike as a whole. Large, high quality gems are a rarity, and their
distribution within a kimberlite is extremely difficult to predict. The
bulk sample in general contained stones larger, and in greater quantity
than did a comparably sized bulk sample processed by Ekati.
Much work lies ahead before Snap Lake might become a mine. Mr. Swatton said
that the company officials would sit down and plan their next steps after
the results of the second bulk sample became available. He said the current
drill program was now complete, with the last drill hole being completed
Sunday night. Results for the current round of drilling, the caustic fusion
results of holes drilled earlier this spring, as well as an updated
analysis conducted by MRDI Canada would be available later this summer.
There are currently no plans to take a bulk sample from the north shore
area, due to logistical reasons. The shallowest intersection of the dyke in
that region was apparently 50 metres, which would make the recovery of a
sizable sample difficult. Nevertheless, the company will continue to look
for a site where such a sample might be possible. The original bulk
sampling plan, announced last winter, was to extract three 2,000 tonne
samples, including one from the north shore, but no suitable site was
found.
Mr. Swatton indicated the company was pleased with the results of the first
bulk sample. He stated that the results were not a surprise, although they
were hoping for a somewhat higher valuation, perhaps up to $250 (U.S.) per
tonne. Mr. Swatton indicated that they expected another 5,000 carats or
more, with a value the same, or higher, possibly in the low $200 range. "We
really don't know.", he stated. He said Winspear was taking a conservative
approach in its expectations, but acknowledged that higher values were
indeed possible.
Large, high quality diamonds contribute most of the value given to a parcel
of diamonds. Guessing the value of a bulk sample in advance is therefore
very inaccurate, due to the random and rare occurrence of these stones. Mr.
Swatton said that very little variation was noted across the first 3,000
tonne bulk sample, noting that predicting the occurrence of smaller stones
is far more accurate. "Trying to predict grade is harder with large
stones.", he said.
Analysts were mixed in their reaction to the news. John Kaiser advised his
subscribers holding Winspear to sell, writing, "If you can sell at prices
above $3, do so". Mr. Kaiser expects the volatile trading of Winspear to
stabilize , "Once the market spin has made the transition from the 'diamond
find of the century' to one of a very interesting mine candidate whose
project economics still needs lots of serious work".
Sudhir Khanna appears more optimistic, suggesting that the risk has been
removed from Winspear, and he expects the stock to reach new highs later
this summer. Canaccord analyst David James appears suitably impressed with
the results. He writes, "All said, we think we have a new diamond mine for
the Northwest Territories...". He recommends Winspear on any pending
weakness.
It appears likely that the valuation guessing games, or what Mr. Swatton
describes as "geofantasy", will continue among investors and analysts
alike, until the second bulk sample results are announced.
While many investors may have been "geofantasizing" about much higher value
from the initial bulk sample, one should view the current results in
context. Ekati, Canada's only operating diamond mine, contains proven and
probable reserves of 66 million tonnes grading 1.09 carats per tonne,
valued at $84 (U.S.) per carat, or $91 (U.S.) per tonne. The Panda pipe is
the richest, with a total value of $142 (U.S.) per tonne.
The Diavik project of Aber Resources and Rio Tinto has a higher ore value
than Ekati. Diavik has a resource of 37 million tonnes with an average
grade of 3.5 carats per tonne worth an estimated $55 (U.S.) per carat, or
$193 (U.S.) per tonne. The A-154 south pipe carries an estimated value of
just over $300 (U.S.) per tonne.
The Kennedy Lake project of Mountain Province Mining Ltd. and Monopros Ltd.
appears to have a potentially economic deposit as well. The joint venture
is awaiting the results of a bulk sample taken this spring, but results to
date suggest an ore value of $100 (U.S.) per tonne, with the Tuzo pipe
having a value in the neighbourhood of $150 (U.S.) per tonne.
With the combined results of the bulk samples, weighing a total of 3,200
tonnes, Snap Lake would appear to have a very high valuation, at $193
(U.S.) per tonne.
In addition to the final 3,000 tonne bulk sample results, the revised MRDI
Canada scoping study will prove to be of interest to investors. The initial
report suggested a profitable open pit and underground mining operation was
possible, based on preliminary data. The revised report will have access to
much better defined value and tonnage data. There has been recent
speculation by some analysts, such as Deutsche Bank's George Albino, that
mining rates in excess of the original 1,000 tonne per day mine envisioned
by MRDI are indeed possible. The revised report should provide investors
with a clearer picture of the scope and potential for the Snap Lake
deposit.
Winspear shares were particularly active over the past two weeks, climbing
abruptly from the $3.50 range to a high of $5.30 on May 31. The stock
traded just under $5 until June 10, when it began a slide, reaching $3.61
on June 15. Winspear closed at $4.05 last Wednesday, at which point trading
was halted, pending the release of the sample results. Winspear opened
Monday morning at $3.60, and quickly dropped to $3.20 on heavy volume,
before recovering to close at $3.57, with well over two million shares
changed hands.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch. |
