This just in, thought everyone would find it informative. Sorry, it is rather verbose.
V.KRT Kensington Resources (new high $4.62)
Potential Risks and Rewards of Diamond Plays and comparative to other
Diamond Plays
The following information and tables were gathered from various
published
reports which we believe to be accurate. We have made every attempt to
comment with factual information but we are not geologists and cannot
make
guarantees.
Diamonds generate approx. US $40 billion annually. The level of supply
and
demand is regulated and controlled through a centralized organization.
This
system has strengthened and increased the industry's production and
profitability for over 100 years. Analysts predict the world market for
diamonds will fall into deficit by 1997, driving up prices for rough
cut
diamonds. Emerging diamond producers like Canada are well positioned to
take advantage of this growth expected.
Investing in diamond mining companies requires patience. It takes years
to
qualify and quantify a significant discovery and the process is costly.
This is what makes diamonds so valuable. The risks are high but the
potential rewards are enormous.
There are 5 phases before a diamond discovery can become economical.
The
earlier investment is made in the exploration process, the greater the
potential return if actual mining results.
PHASE 1: Initial exploration and discovery. Few diamond bearing
ore-bodies
exist and the probability of success is around 10%.
PHASE 2: Kimberlite bodies are discovered and sampling produces
encouraging
results. Success probability increases to 20%.
PHASE 3: Advanced sampling of bore holes. Success probability jumps to
40%.
PHASE 4: Large bulk sampling occurs. Success probability jumps to 60%.
PHASE 5: Decision to mine is made. Success probability is 100%.
Kensington is at Phase 4, 60% success probability. We would expect that
if
the drilling results to be released, probably tomorrow, are consistant
with
previous results or exceed them, KRT will advance to 8" diameter bore
holes
and large tonnage bulk sampling this summer. This is the stage when
institutions usually consider the potential risk and rewards based on
the
data available and whether KRT is suitable for investment. Institutions
generally wait until a diamond play is well into Phase 4, when there
are
reports published by analysts to further confirm the potential. We are
told
there are several reports expected to be published soon which recommend
KRT.
Luck is a factor in any mining exploration endeavor. However, we feel
the
key to getting lucky and obtaining success is having strong management.
KRT's chairman is Don Nicholson, an experienced mine builder. The
president
of KRT is Clive Newell, a geologist with 23+ years of experience with a
strong background in diamond exploration. Technical support comes from
their advisory board member Professor Peter Nixon, of Leeds
University, an
internationally recognized authority on diamond exploration techniques.
KRT's chief geologist is Arthur de Carle, a seasoned professional with
more
then 20 years in the field. Another KRT director, Lorne Anderson, is
the
current CFO of Glamis Gold and is an experienced international
financier.
The diamond market is tightly controlled by a powerful cartel. Between
70
and 80% of the world's rough cut gem diamonds are supplied by the CSO,
the
Central Selling Organization, headed by De Beers. The Fort a la Corne
diamond project in Saskatchewan has four partners controlling 25% each.
They are Cameco (a major mining company), Uranerz Exploration (a $3
billion
German mining company which mines 10% of the world's Uranium for
peaceful
purposes), Kensington Resources and Monopros (a DeBeers subsidiary).
Kensington has an agreement with De Beers for purchase of all its rough
cut
diamonds at prevailing CSO prices.
There are over 5000 different categories of rough cut diamonds. Each
stones
characteristics are judged on four basic criteria, the four C's.
1. Crystal formation (shape)
2. Colour
3. Clarity
4. Carat weight.
Crystal formation falls into three main categories:
1. Gems subclassified as stones, shapes, cleavage, modes, melee, chips
& flats.
2. Near Gems previously too small to cut are now termed "Indian goods".
3. Industrial.
Colour is an important category from D-colourless to Z-yellow. Three
quarters of all polished diamonds fall into categories E to H, which
are
exceptional white to white.
Clarity refers to number and type of flaws and inclusions within the
stone
which interfere with the passage of light. The purity standards are:
FL-flawless, IF internally flawless, VVS1-2 very, very small
inclusion(s),
VS1-2 very small inclusion(s), SI1-2 small inclusion(s), P1-2 very
easily
visible inclusion(s), REJ reject.
Carat weight is the measurement term for diamonds, when one carat
equals
1/142 of an ounce, or 0.23 grams. Diamonds are small and after cutting,
lose a further 60% of their weight. The larger the diamond, the greater
the
value, providing its other characteristics don't detract from its
quality.
Rough Diamond Values
Large Gems (>2ct) +US $ 800/ct
(O.45 ct - 2 cts) +US $ 200/ct
Small Gems (<0.45 ct) -US $ 150/ct
Indian Goods -US $ 50/ct
Industrial -US $ 5/ct
Diamonds in Canada
Up until recently no one was convinced that economical diamond
deposits
existed in North America, In 1992 DiaMet Minerals find in NWT sent its
shares from <$1 to $60 in 14 months. Aber Resources and Mountain
Province
Mining have potentially economic diamond deposits in NWT as well. Aber
Resources T.ABZ has traded from $8 to $24 in the past 6 months and
V.MPV
has traded from <$1 to $9+ in the last year.
Kensington has identified 71 Kimberlite pipes hosting hundreds of
millions
of tonnes to a billion tonnes of ore per pipe. This compares to some of
the
NWT plays which host a few pipes of around 20 million+ tonnes per pipe. The
NWT companies mentioned are further along in the testing process and DiaMet
plans to go into production within a few years. KRT has several testing
stages to continue to go through before diamond mining can be
contemplated.
Of the 45 Kimberlites tested so far, 25 were found to be
diamondiferous,
with a total of 591 macro-diamonds recovered to date. Unlike some other
Canadian exploration plays who include stones greater than 0.5mm in
this
class, the Fort a la Corne macro-diamonds are all greater than 1mm. In
a
sampling of at least 10 tonnes from each Kimberlite, over 3,500
micro-diamonds were extracted from a total of 1,309 tonnes of
Kimberlite.
The Fort a la Corne Kimberlite cluster is in a very different
geological
environment than most other Kimberlite bodies. In South Africa, Russia
and
the Northwest Territories, erosion reduces the total number of
imperfect or
industrial grade stones. The Saskatchewan clusters have escaped
erosion,
covered by a thick sedimentary layer left by an inland sea. This means
the
pipes are all intact and are in most cases larger and higher grade. The
Fort a la Corne area is also unique in that the proportion of
diamondiferous Kimberlites is more than 3 times that of existing
producing
areas and more than 10 times that of all known Kimberlites in the world.
Fort a la Corne vs. producing areas
# of Kimberlites 71 7 - 90
Diamondiferous Kimberlites 78% (35/45) 24% (45/195)
Economic Kimberlites if 9% then 6 9% (18/195)
Median Surface Area 19 hectares 12 hectares
Avg. Mass of Kimberlite (to 120m) 70 M.tonnes 34 M.tonnes
Avg. Size of Recovered Diamond 0.05 ct 0.07 ct
Best 3 Kimberlites Tested to Date based on grade, Fort a la Corne
Kimberlite Body Tonnage Sample Size carat/t value US$/ct.
122 540.0 533.0 0.1996
44.00
140 536.8 889.6 0.1449 104.20
145 213.5 700.0 0.6553 184.00
Pipe 145 averaged 65.5/cts per 100 tonnes. If this can be confirmed by
further testing, this Kimberlite could contain 118 million carats of
macrodiamonds. We can speculate that 20,000 tones per day, open pit
mining,
could produce US$ 450 million per year in after tax cash flow from this
single pipe.
There is lots of testing to be completed before a mine can be
contemplated,
as stated earlier. There are still 26 Kimberlite pipes which have not
been
tested yet. We anticipate that KRT will do a final 5,000 ton bulk
sample
and feasibility study later this year once mini-bulk testing is
completed.
This is the final step before commencing a full scale mining operation.
Although the risks are significant we feel that if KRT and its joint
venture partners can confirm early results through bulk testing, KRT's
potential is enormous. We have been expecting an announcement on
drilling
results on the last 8 holes drilled for a few days now. We believe this
explains the trading activity in KRT recently which closed at a new all
time high of $4.62. You can contact Kensington Resources at
1-800-333-8098
for more info.
(C) 1996 Investors GURU small cap stock observer
Please read our disclaimer at our site
ccn.cs.dal.ca
Let's keep up the good thoughts.......I think great things are going to happen.
Terry |
