Paul: Note the reference to Kalahari in Will's Streewire:
Winspear Diamonds Inc -
Winspear's sister company a potential beneficiary
Winspear Diamonds Inc WSP
Shares issued 51,634,088
2000-08-02 close $4.23
Wednesday Aug 2 2000
Also Diamondex Resources Ltd (DSP)
by Will Purcell
Winspear Diamonds Inc. has provided yet another hasty exploration update from its
value recognition program under way at the Snap Lake diamond property in the
Northwest Territories. The program continues to produce positive results for Winspear
and its joint venture partner, Aber Diamonds Inc., but it may ultimately offer a big
boost as well to Diamondex Resources Ltd., the company spun off from Winspear that
owns the King property, just to the north of Snap Lake.
Winspear now has six land-based drills turning feverishly -- some might say desperately
-- at Snap Lake, performing infill drilling to allow the kimberlite to be classified as a
resource, and also attempting to expand the minable tonnage by completing step-out
drill holes to the north and east of the known limits of the dike system. On Monday, the
company released the results of six recently completed holes. Three of these were
classified as infill holes, although all of them appear to have been drilled in the area
outside of the region contained in the 1999 global tonnage estimate. As a result, it
seems likely that at least a portion of the recent tonnage increase will soon be classified
as an inferred resource.
Three step-out holes were also completed. One was drilled well to the east, on the
southeast shore of the northeast arm of Snap Lake. The hole was successful, returning
a 1.32-metre kimberlite intersection in a prospective region between the northwest dike
and the southeast dike system. Perhaps of more interest to more aggressive investors
were the two holes completed toward the northern limits of the Camsell Lake property.
One hole was drilled about 550 metres to the northeast of the previously stated limit of
the kimberlite and resulted in two intersections thicker than one metre, about 125
metres apart. This hole appears to be within 800 metres of the Camsell property line.
The second hole was apparently completed about 500 metres to the northwest, within
400 metres of the property limit, and a 3.37-metre kimberlite intersection resulted.
The drilling already completed should provide an increase in the minable, or global
tonnage estimate of the Snap Lake dike. Including the area contained by the three
step-out holes might be expected to add another six to eight million tonnes of
kimberlite, bringing the grand total closer to 50 million tonnes. Two holes currently in
progress are likely to provide a further increase still. One of those holes is roughly 400
metres further northeast of the latest drilling, while the second is being drilled about 800
metres to the west of the most northerly drill hole. Should the latter be successful, it
would add a considerable amount of kimberlite to the estimated global tonnage of Snap
Lake.
It might have an even bigger impact on the prospects for the King property, once a
Winspear acquisition, but now owned by its sister company, Diamondex. Although no
drill holes have been completed on King ground, it now appears quite likely that the
Snap Lake dike does extend onto the property. The most important question, how
much kimberlite exists below the surface at King, is one not likely to be answered any
time soon, however.
The King property extends well to the east of the recently completed northern drill
hole, approximately 1,600 metres according to the most recent property maps. The
western edge of King extends well to the west of any likely northern extension of the
Snap deposit. Although such speculation appears somewhat pointless at this time,
without any confirming drill program at King, there is the potential that several million
tonnes of kimberlite are present, and perhaps more than 10 million tonnes, if everything
were to break Diamondex's way. One thing seems certain: the dike would occur at a
considerable depth on the King property. The more northerly intersections have been
at depths approaching 1,000 metres, and depths of up to 1,500 metres on King are
possible, should the dike extend some distance onto King.
Mining at that depth is certainly possible, although there would be a number of
important engineering hurdles to cross, and the operating and capital costs would
certainly be higher than for the much shallower portions of the Snap Lake dike.
Nevertheless, if the diamond content and value of the dike remains consistent
throughout, the potential revenues should well exceed the increased costs.
More perplexing from Diamondex's perspective would be the issue of getting at those
potential diamonds. It may well be that there is an insufficient resource to consider
building an independent mine site on the King property, even if does turn out that there
are several million carats present underground. In theory, at least, it would be far more
feasible to mine any King kimberlite from the proposed Snap Lake mine under some
sort of arrangement between Diamondex and Winspear.
Such an arrangement might be far easier to come by if Winspear manages to turn back
the hostile bid by De Beers, or any other potential suitors, as Winspear and Diamondex
share a common board of directors, and indeed have many common shareholders. If a
major were to acquire Snap Lake, any Diamondex diamonds would likely sit in the
ground at least until all of the Winspear portion of the property was mined out, a
process that is likely to take 25 years or longer. Despite remaining a relatively long
shot, such a deal could have a major impact on tiny Diamondex. If there were about
five million tonnes of kimberlite on King, with the same grade and value as the rest of
the dike is believed to contain, the potential net present value could be significant, even
if mining was a long time coming. For instance, if the operator of Snap Lake agreed to
mine and process King kimberlite at 1,500 tonnes per day, there would be sufficient
ore for a 10-year operation, generating revenues of about $150-million annually, or
after-tax cash flows of about $40-million. If the mine operator and Diamondex agreed
to split that cash flow equally, the result would still be a $20-million after-tax cash flow
to Diamondex, or about $2 per fully diluted outstanding share. Even under the
assumption that the mining did not start for 20 years, such a plan would provide the
King property with a hypothetical present value of about $2 per share, discounted at
10 per cent. Diamondex shares have been rallying of late, after declining through the
spring from $1.20 at the beginning of March to a mid-June low of 52 cents. The stock
gapped up to above 80 cents on the news of the De Beers hostile bid for Winspear,
but began to climb steadily after Winspear announced the value recognition program,
perhaps in anticipation that Winspear drilling might indeed provide a clear sign that the
dike indeed extended onto the King property. Indeed, the elusive source of the Snap
kimberlite has not yet been found, and it conceivably could reside on the King side of
the border, or even further east on the Kalahari Resources Inc. joint venture ground.
Although it is not certain that any kimberlite exists on the King property, and it is far
from certain that sufficient kimberlite will ever be found, nevertheless, the more
aggressive speculators appear to be taking a chance that the King property will provide
Diamondex with its first exploration success. The market should not have long to wait
for the next batch of results that should provide more clues. With the deadline for the
De Beers offer looming just two weeks away, the drill results from the next northern
hole are expected shortly.
For now, at least, Diamondex is certainly not making King a priority, possibly because
the Winspear drill program will go a long way toward proving or killing the notion of a
significant kimberlite tonnage on King. Diamondex recently announced a private
placement of 2.5 million units at 80 cents per unit. The proceeds, about $2-million, are
earmarked for further exploration on the company's Kelsey and Hilltop properties. The
100-per-cent owned Hilltop claims are located immediately to the west of the Camsell
Lake property which hosts Snap Lake, while the 70-per-cent owned Kelsey property
is further east, immediately adjacent to the Mountain Province joint venture property
that hosts the Kennady Lake project and at least four significantly diamondiferous
kimberlite bodies. Diamondex must spend just over $800,000 in exploration to earn its
interest in Kelsey, which it is acquiring under option from Tyler Resources Ltd.
The market's reaction to the news from Winspear was somewhat mixed. Winspear
dropped five cents Monday, and another five cents yesterday, to close at $4.30.
Meanwhile, Diamondex jumped 15 cents on Monday, but gave back most of those
gains yesterday, dropping 10 cents to end the day at $1.20.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com
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