Diamonds North and Teck expand their gem hunt
Diamonds North Resources Ltd DDN
Shares issued 23,831,982 Mar 24 close $1.33
Thu 25 Mar 2004 Street Wire
Also (TEK)
by Will Purcell
Diamonds North Resources has received confirmation that its Victoria Island diamond partner will be taking up its option to earn a 30-per-cent stake in the Blue Ice property that hosts a string of encouraging kimberlite finds in the central part of Victoria Island. The move by Teck Cominco was an expected one, after a number of those kimberlites delivered a round of encouraging diamond counts, but there was an unexpected twist to the development, as Teck and Diamonds North have expanded their partnership to cover the nearby White Ice and Hadley Bay properties as well. The additional ground includes a second string of kimberlites that could add to the merits of the play, which needs kimberlite tonnage as well as diamond grade and value to succeed, as well as some additional targets. According to the expanded agreement, Teck will have to spend $11.5-million to earn a 30-per-cent stake in the three properties, which is $2-million more than the original deal covering Blue Ice had called for. Teck can earn a 50-per-cent share in the three properties by spending $16.5-million by the end of 2008 and it can ultimately acquire a 70-per-cent share by carrying Diamonds North to production. As a result of the agreement, Teck is upping its planned expenditure on the Victoria Island play to about $3-million this year, and similar amounts would be required in subsequent years to meet the terms of the deal. Some of that new cash will undoubtedly be directed at some existing kimberlite finds along a northwesterly trending line that lies about 25 kilometres to the north of the Galaxy structure. Galaxy delivered all of the diamond promise last year, but there are a number of existing kimberlites along the more northerly feature, which cuts across the southwesterly portion of the Hadley Bay property, and at least one of the bodies delivered a set of toutable diamond counts when it was last tested in 2002. In 2002, Diamonds North's former Hadley Bay partner, Canabrava Diamond, processed nearly 390 kilograms of kimberlite from King Eider, coming up with 64 diamonds larger than a 0.106-millimetre sieve. That modest haul amounted to only 164 diamonds per tonne, but there were encouraging signs that the King Eider diamonds had a favourable size distribution curve. In all, 14 of the diamonds were large enough to remain on a 0.30-millimetre screen, or about 22 per cent of the entire parcel, and 10 of the stones had been recovered by a 0.425-millimetre mesh, accounting for nearly 16 per cent of the King Eider diamond collection. Offering additional support for the notion that the body had a coarse size distribution curve was the fact that two of the King Eider diamonds were large enough to be recovered by a 0.85-millimetre sieve, which is often used as the minimum cutoff in a small mini-bulk test. At least three of the diamonds were longer than one millimetre. One of those diamonds exceeded 1.1 millimetres in three dimensions, while a second stone was 1.45 millimetres long and 1.2 millimetres wide. As well, there were signs that King Eider had variations in its diamond content, although it is also possible that at least some of the variation was due to random statistical variation on the tiny samples. Three of six kimberlite samples, weighing just over 230 kilograms, had accounted for 42 of the stones, or about 180 stones per tonne. That was not significantly higher than the rate that the entire sample had produced diamonds, but the three richer samples accounted for all of the larger diamonds, suggesting a more favourable size distribution. A dozen of the 42 diamonds were retained by a 0.30-millimetre screen, or nearly 29 per cent of the stones, and all 10 of the diamonds recovered by the 0.425-millimetre sieve had come from the three richer samples, which resulted in a proportion of nearly one-quarter. King Eider now appears to be larger than first thought, and that adds to the possibility that the body has a variable diamond content with potentially richer zones. When De Beer had first discovered the body in 1997, the anomaly was initially described as about 50 metres in diameter, but Diamonds North now touts the feature as a magnetic anomaly that is 300 metres long and 200 metres wide. As well, the work to date indicates that King Eider is a complex kimberlite with multiple phases, with potentially different diamond grades. That would make King Eider seem a likely target for additional drilling by Teck and Diamonds North, and there are a few other old finds on the Hadley Bay property that could be worth a look as well. Canabrava and Diamonds North tested a 20-kilogram batch of rock from the Turnstone kimberlite, and there was nothing in that material to suggest the result was significantly different than what King Eider had delivered. There were just three diamonds in the sample, but that yields a rate that is comparable with King Eider, and although two of the stones were tiny microdiamonds, the third was large enough to remain on a 0.60-millimetre screen and measured just over one millimetre in length. As well, the Jaeger kimberlite could be retested this year. The revised deal with Teck now combines three Diamonds North properties into one larger project, and that will increase the chances of coming up with enough kimberlite to make a Victoria Island mine a possibility. For that reason, Mr. Kolebaba now says should never have been split apart, although the company initially split the big play into several smaller chunks to increase the amount of exploration that would be conducted on the play as a whole. Diamonds North had been working smaller bits of its Victoria project on its own hook, but it also acquired a series of partners to help pay for the exploration efforts on other parts of the play. That arrangement helped a bit initially at Hadley Bay, but progress was often painfully slow on much of the company's projects. The arrival of Teck early last summer resulted in an increased pace at Blue Ice, and coming up with exploration dollars should no longer be a major problem for Diamonds North, due to the revised arrangement. Finding enough kimberlite with economic quantities of diamonds remains a challenge, but Mr. Kolebaba is suitably enthused with the chances of adding several new diamondiferous finds in the coming months. The Galaxy structure on the northern part of the Blue Ice property has sustained the play over the past year, and there were a few new discoveries last year. More are possible this year, especially on the northwestern extension of the trend extending onto the White Ice claims. The chances of making a series of new finds along the King Eider trend line also seem promising, as there had been relatively little work completed on the Hadley Bay block last year. That hunt will likely extend northwestward onto the White Ice play as well. Mr. Kolebaba said that the partners would be using geophysics to full advantage this year, and that includes electromagnetic surveys. Most of the current finds were based on magnetic targets, and there have been many important kimberlite finds that did not have a corresponding magnetic anomaly. As a result, an electromagnetic survey could result in a number of new finds. Meanwhile, there are two new regions that should get a good look this year through a variety of methods. One district lies between the Galaxy and King Eider structures and it also appears to be a line trending in a northwesterly direction that could be comparable with its sister trends. That general location would place the new zone in the border region of the
Blue Ice and Hadley properties, and it could theoretically extend
northwestward onto the White Ice property as well.
The fourth zone appears somewhat different, based on an initial geophysical assessment. The targets lie southwest of the Galaxy structure, and they appear to be circular and resemble pipes, not the elongated dikes that predominate in the Galaxy and King Eider regions. As well, the anomalies are believed to occur in a cluster, not along a trend line. After a brief flurry of interest in the late 1990s, the Victoria Island diamond hunt seemed all but dead two years ago, but the play bounced back with a frenzy of new interest after Major General Resources spun off its diamond assets to the fledgling Diamonds North and appointed Mr. Kolebaba to be its first president. The Regina-born Mr. Kolebaba had been hunting gems for the past decade, starting with a junior company in Venezuela, and then with BHP Billiton in Canada. Mr. Kolebaba had previously been working for the Australian mining giant on a gold play near Hope Bay in Nunavut, but it took a stint at exploring a series of dikes in the Guaniamo district to convince his former employer to give him a shot at gems when it expanded its Canadian diamond presence by opening an office in Kelowna. Now a resident of Vancouver, Mr. Kolebaba was heavily involved with the Ekati project during his years with BHP, although he also he was also placed in charge of running the company's exploration efforts in Eastern Canada. Mr. Kolebaba now has a shot at succeeding where BHP and De Beers did not. The South African diamond hunter called it quits on Victoria Island several years ago, turning over its former project to Major General, and BHP abandoned an option deal on the Victoria project that had been acquired through the takeover of Dia Met Minerals in 2001. Mr. Kolebaba has proven to be an effective promoter since he took over Diamonds North in the spring of 2002. The stock traded as low as 31 cents in the summer of 2002, but the Victoria Island story became a market favourite a short time later, with the first of a series of toutable diamond tallies. Although the harsh Victoria Island climate makes for a short work season, Mr. Kolebaba and Diamonds North have managed to sustain interest in their diamond story for the past 18 months. The stock recently crested at $1.79, helped by another batch of diamonds, although things cooled a bit recently, due to a modest stone count in another lot of samples. The revised deal with Teck triggered some renewed optimism however, as Diamonds North added a dime on Wednesday, closing at $1.33.
(c) Copyright 2004 Canjex Publishing Ltd. stockwatch.com
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