off topic,
SouthernEra may take another run at Canadian diamonds
SouthernEra Resources Limited SUF
Shares issued 27,766,645 Aug 17 close $1.72
Fri 18 Aug 2000 Street Wire
by Will Purcell
SouthernEra Ltd. appears to be readying itself to make another run at
finding an economic diamond deposit in Canada. The company has been through
some turbulent times of late and is due to receive its third president in
less than a year, but the company's founder, Chris Jennings, said that the
company was still looking at exploring close to home. "We desperately would
love to have something in Canada, where we started, and we have three shots
at it," he stated.
The most immediate of those shots now appears likely to be fired on the
company's MacKay Lake property, which adjoins the Camsell Lake ground
controlled by Winspear Diamonds Inc.
With the bid by De Beers Canada Corp. to acquire all of the shares of
Winspear now all but certain to succeed, it seems at first glance that
majority control over the entire Snap Lake dike system is about to pass
into foreign hands.
That may not entirely be the case, however. Recent drilling results
completed by Winspear show deep kimberlite intersections just to the south
of the King claims, held by Winspear's sister company, Diamondex Resources
Ltd., and not that far from the MacKay Lake ground. SouthernEra holds a
70-per-cent stake in the MacKay land, with Bert Applegath's Kalahari
Resources Ltd. holding the remaining 30 per cent.
The Winspear results now appear to place the adjoining ground back in play.
The King property has not seen much work in recent times, and MacKay had
certainly fallen well down SouthernEra's priority list. As well, as
preliminary work failed to uncover anything dramatic, unlike the Back Lake
property just to the east of MacKay. That is now likely to change.
Mr. Jennings said, "What I am going to put up to the board, is that they
vote money to go to the extreme southwest corner of our claim, and just
drill a vertical hole." He added that the hole would likely be completed to
a depth of between 1,500 to 2,000 metres, "to see what is there." Mr.
Jennings, like many speculators, believes that the Snap Lake dike does
extend on to SouthernEra ground. "I don't have any doubt that its there, it
is a matter of how deep is it, and how thick is it," he stated.
If it is present, the dike is expected to occur at about 1,000 metres in
the extreme southwestern corner of the MacKay claims, and a hole completed
to twice that depth might well intersect additional kimberlite layers.
Winspear had noted that a second, lower dike seemed to exist over parts of
the eastern portion of the Snap Lake region, and it is quite possible that
additional intersections of kimberlite may be encountered at MacKay as
well.
If the proposed drill hole does indeed intersect kimberlite, the next
question that will inevitably need to be answered is just how much of the
dike lies beneath the surface of the MacKay property. In theory, the MacKay
land is certainly large enough to host a considerable amount of kimberlite
resident in a nearly horizontal dike, or sill, and Mr. Jennings noted that
the entire Snap Lake dike as it is currently defined would easily fit onto
the SouthernEra claims.
It may be a costly venture to identify a significant amount of kimberlite
at MacKay. The proposed SouthernEra drill hole is likely to cost at least
$200,000, due to the planned depth, and further holes are likely to carry a
similar price tag, which is far greater than the average cost faced by
Winspear. To prove a resource of about 16 million tonnes, over an area
about 1.6 kilometres square, would require about 40 additional holes, and
such a drill program might well cost in the neighbourhood of $10-million.
Nevertheless, SouthernEra might well be able to determine if such an
aggressive drill program would be warranted, through the completion of
relatively few holes in much the same fashion as Winspear was able to
quickly identify late in 1998 that its dike extended well to the north and
east, by simply poking a few holes well down dip. Indeed, a $1-million
drill program might be able to provide sufficient information to prove or
kill the notion that a substantial portion of the Snap Lake dike exists on
MacKay.
Questions would remain even if a substantial amount of kimberlite were to
be found on the property. The dike continues to deepen toward the
northeast, although it is indeed possible that it may begin to surface
further to the northeast. Additional mining costs and additional
engineering problems generally accompany orebodies that occur at
considerable depth, and the geothermal gradient could be sufficient to
present heat problems in such a mine, even given its Arctic locale.
Nevertheless, there are many mines operating at depths of 1,000 metres or
more, and Mr. Jennings said, "I don't think there is a serious problem
there."
The possibility that the Snap Lake dike extends onto other property has
occupied the minds of a few more aggressive speculators for some time, but
it appears to be catching on of late and Mr. Jennings is not the only
mining executive sharing that belief. For a time, there was actually some
open ground just north of the Snap Lake property, but that appears to have
been staked by Diamondex Resources Ltd. Indeed, Winspear and Diamondex
president, Randy Turner, was so intrigued with the notion that the dike
might be much larger than first envisioned that he apparently inquired
about a possible deal with SouthernEra on the MacKay ground.
Mr. Jennings said that he thought that De Beers might well be interested in
the MacKay property, and he confirmed that he had talked to Mr. Turner
about the matter as well. The third option, he suggested, was that
SouthernEra conduct the required exploration on its own. "This could be one
of our much more interesting Northwest Territories plays," he stated.
Indeed it could, at least for the shorter term. Meanwhile, the notion that
the Snap Lake dike system could extend onto Diamondex and SouthernEra
ground will remain in the realm of "geofantasy," at least until the
companies actually test the deeps with long drill holes.
SouthernEra acquired its 70-per-cent interest in the MacKay property in the
early 1990s with the promise to spend $1.7-million in exploration. That
acquisition might well turn out to be a bargain, with a number of
drill-hole successes, following De Beers's $305-million offer for Winspear
and its 67.76-per-cent share of Snap Lake. Mr. Jennings said that he
believed the revised De Beers offer was fair, and he was impressed with the
defense mounted by Winspear. "I think they fought valiantly and did a hell
of a good job as directors, and now have a reasonable price," he stated,
adding that it was all the more impressive as it appeared that there were
no competing bids likely to be made.
Mr. Jennings certainly knows a thing or two about negotiating with De
Beers. In 1998, he was faced with the prospect of losing SouthernEra's
entire interest in the Marsfontein project, but the company managed to
emerge with a 40-per-cent share when all was said and done. Undoubtedly,
Mr. Jennings would enjoy the prospect of having a sizable chunk of a large
Snap Lake dike falling onto MacKay Lake, and into his lap. Mr. Turner would
certainly also relish the thought of having a significant portion of the
dike fall under Diamondex turf, to the east of MacKay.
In the longer term, Mr. Jennings continues to believe that the company's
more northerly properties hold good promise. The company has spent several
years at Yamba Lake now, following in the steps of De Beers, which
abandoned the play in the mid 1990s.
"It is the usual needle in the haystack story," Mr. Jennings said, adding
that they still had mineral trains without a known source, and as a result,
the company planned to be "plugging away at it next winter."
Yamba aside, it is the Lac de Gras region that continues to captivate Mr.
Jennings. The company owns a 40-per-cent stake in a property just south of
Ekati, and just west of Diavik, which lies on the trend line extending
southwestward from the original Point Lake discovery, through the four
major Diavik pipes, and Mr. Jennings has long believed that the best pipes
might actually lie under Lac de Gras itself.
SouthernEra's joint venture partner, Kennecott Canada Inc., may not be so
sure about that. Mr. Jennings said that Kennecott had always seemed to
start their work late, and were frequently confronted with an early
breakup. Nevertheless the work completed indicated that there are sources
in the lake, and they would certainly have a good pedigree, if they occur
along the Diavik trend line.
Should a rich pipe be found, the partners would likely have to consider
alternative mining methods. Lac de Gras is not that deep, with a maximum
depth of about 30 metres, and an average depth of 20 metres or less, but a
pipe well out in the lake would nevertheless have to be mined by
underground methods. That prospect did not particularly faze Mr. Jennings,
however. "I am not worried, given a discovery like A-154, that these things
can be economically mined."
In addition to the Lac de Gras claims, SouthernEra also has a smaller
interest in the Tenby and Commonwealth blocks of the Diavik property. There
have been no economic discoveries found on this ground, but Mr. Jennings
remains hopeful that the western end of the properties may also yield an
economic pipe or two. Collecting till samples on these properties has been
a problem, apparently due to the presence of outwash gravels, which make
indicator mineral trains very hard to identify, and it is possible that a
good discovery remains well masked.
For now at least, Canadian exploration may be about to experience a bit of
a renaissance at SouthernEra. Mr. Jennings said that MacKay Lake was the
property with the most immediate interest, but for the most valuable
discoveries, he was still looking to the Lac de Gras claims, and to Yamba.
SouthernEra may be experiencing a bit of a renaissance itself. The stock
traded above $3 in February, but had been in a steady decline since then,
dropping below the $1 mark in July. The stock has been rallying of late,
and it reached a high of $1.84 on Thursday, before easing off somewhat,
closing down six cents, to $1.72. Meanwhile, Kalahari shares remain in a
steady summer decline, closing Thursday at 14 cents, down one cent on the
day.
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