Winspear Diamonds Inc -
Winspear's scoping results commented on by De Beers
Winspear Diamonds Inc WSP
Shares issued 51,634,088 2000-07-12 close $4.67
Thursday Jul 13 2000
Mr. Tom Beardmore-Gray of De Beers reports
De Beers expressed surprise today at the increase in the minable resources identified by Winspear Diamonds as a result of a scoping study at Snap Lake. The study was conducted in the period since the announcement of De Beers's $4.25 all cash premium offer for Winspear made June 26.
The initial prefeasibility study on the Snap Lake deposit required several years of work to generate mineable resources of 12.6 million tonnes. Winspear now implies that the addition of limited new data has managed to increase the level of mineable resources by a factor of more than three.
The scoping study was initiated in response to De Beers's offer to purchase Winspear. The implications of the scoping study data were not disclosed in the June 20 preliminary prospectus to raise $20-million through the issuance of shares and warrants when the stock was trading at around $2.50. It might have been expected that this information would have been released before proposing a dilutive equity issue.
De Beers is also surprised at the speed at which a significantly more complex mining plan has been developed. The new mine plan published July 11, calls for total capital of $519-million, an increase of 93 per cent over the previously identified $269-million figure in the prefeasibility study. It remains unclear how the first and second stages of the project are to be financed and what the implications are for equity dilution.
"As has been emphasized by Winspear management, no reserve has yet been defined on the Snap Lake property and the bulk of these tonnages are at best low confidence inferred resources only," explained Richard Molyneux, president and chief executive officer of De Beers Canada Corporation, who has many years of operational experience earned in De Beers's underground diamond mines. "The underground excavation of kimberlite in the form of a thin, flat orebody lying at a low angle of dip, at relatively low depth, under a lake, has not been undertaken anywhere in the world, and brings with it a number of significant risks."
De Beers considers this project to be of high risk due to a variety of factors including lack of data confirming grade and diamond revenue across the deposit; high capital costs and low confidence limits on capital and mining cost estimates; uncertainty over mining rates which could be adversely affected by a range of mining problems; and, potential environmental and permitting problems.
De Beers's all cash offer of $4.25 per common share represents a premium of 77 per cent over Winspear's closing price on the Toronto Stock Exchange of $2.40 on June 23. It also represents a 90-per-cent premium over Winspear's average closing price for the 20 full trading days prior to the offer announcement.
De Beers continues to believe the offer provides value to Winspear shareholders, particularly given the prefeasibility stage of the project, the technical and permitting risks involved, the significant expenditure that will be required to bring this project into production and the consequent shareholder dilution. The offer was mailed to shareholders July 6 and remains open until July 28, 2000.
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