Emeralds and Greg Davison
I talked to Mr. Davison regarding the Tsa Da Glisza emeralds last Friday. The discussion was quite a contrast to talking to Mr. Rohtert. Although both are top professionals with a great deal of experience in similar areas, Davison and Rohtert could hardly have more different in style -- Davison being very much more soft-spoken, low-key, and guarded in everything he said. Combined with the fact that there is a lot of off-limits news to come out in news releases, his cautiousness did not make for many great revelations, however I did get a better picture of how he views the project and how it is progressing.
Here is a summary of the information I got. I am paraphrasing and logically reorganizing what was spread over a longer conversation into questions and answers that are in my words. My apologies to Mr. Davison if I do not say things in his words and have failed in any way in representing what he said. Thanks go to him for taking time to talk to me and respond to all my questions in a frank manner.
Q: Did you fulfill your goal of finding lateral and vertical extensions of the emeralds and is the company finding zones that have better grade and quality than the averages shown
in the 43-101 report?
A: Some extensions of mineralized areas were found, and progress was made finding new zones areas of the ridge this year. Information will come out in news releases. Note though that mining was done in a similar manner to before, removing material from the surface, and done so as to get a representative picture of the whole deposit, not to get high grade or focus on certain areas. It is the nature of this type of emerald deposit to be somewhat complex and unpredictable, with certain areas providing better mineralization than others (for example where alteration occurs where veins intersect the mineralized horizons). Almost all the gem quality emerald retrieved up to 2004 came from two areas, a lot of it from a hand-mined 10 kg pocket of emerald in the Mattscar area. That said, the mineralization is quite spread out over about 1 km strike, 200-300m width and extending down to 200-300m depth so there are a lot of areas to look to find where the best mineralization might be.
Q: Any ballpark estimates on what costs the company could have in commercial mining per tonne? In a larger scale operation, would the equipment perhaps be different from what is used now?
A: It would require a feasibility study to determine costs. Larger scale operations would use similar although perhaps bigger equipment for open pit extraction. Right now, almost all the emerald has been scraped from the broken-up near-surface, and mining the hard rock which is at varying depths and sometimes not far below has generally not been done. At some point it would be necessary to use explosives to break up the solid rock and this is commonly done in the emerald deposits of Zambia which are geologically similar to Tsa Da Glisza. Would the hard rock areas yield better emeralds? They would suffer less from issues that affect some of the emeralds at the surface, but no there are no guarantees that they would be highest quality or significantly better quality.
4) What improvements were made in mining and processing in 2005, and how did this impact what was returned?
A: 25 tonne rock trucks were added to carry samples, to speed things up. In 2004 lots of repairs were needed to equipment, but that was less the case this year. The processing plant was redesigned to streamline it work go around the clock. Unfortunately the shaft of the jaw-crusher for the plant sheared in two in mid-August in a freak occurence, which cut three weeks out of processing emerald while a new shaft was tooled in Whitehorse. Nevertheless, the season was overall successful and news releases will provide details.
Q: Is year-round mining envisioned as a possibility, and what might be the conditions or circumstance of this if it were the case?
A: It is a possibility to mine all year, since that is done in other places in the north, however there would be limitations and a need for changes. First of all, the processing plant is now exposed on top of the ridge at a high elevation. It would be necessary to move it to the bottom of the ridge, which would require hauling ore a long way down from the higher elevations where the emeralds are to the plant. Also, in winter there is a lot of snow to contend with and Tsa Da Glisza if it ever becomes a mine would almost certainly be open pit, this due to cost issues of underground and the fact that the structural integrity of the rock in the ridge is not very high and it would be challenging to support shafts.
5) The land use permit expires August 12, 2006. What options are open to the company in continuing with the property after that permit expires?
A: The operating permits will be extended. TGX needs to explain what operations will occur, and make a request for an extension [Mr. Davison is working on this]. Also, as of November there are new environmental protocols in effect so submissions will have do deal with these protocols.
6) Are the local aboriginal leadership still as positive on the development of the property as before?
A: 36 first nations people were hired this year (more than half of the crew), and they were enthusiastic workers, so that speaks to how the aboriginals appreciate TGX's presence. Actually, 80% of the crew were locals from the Yukon, and this is an indication of how the company stands with locals in general.
Q: About how much will it cost to move the deposit to prefeasibility?
A: The company is still looking into it, and it will be necessary to complete another field season before they would be ready to do the report. If you look at diamond deposits, where the gemstone distribution is somewhat unpredictable, you need at least 25,000 tonnes and perhaps a lot more to determine profitability, and at Tsa Da Glisza, where the geology is very convoluted and complex, only 5,000 tonnes have been sampled. The fact that the field season in the Yukon is so short forces things to move slowly because TGX is limited in how much they can do each year season. The sampling has attempted to be representative and to give a fair picture of the overall mineralization and not to high-grade.
Q: Any opinion on why the polished gem yield is quoted in the 43-101 report to be only 0.1121 percent of total emerald (see page 7), which seems to be low?
A: The number did not come from Mr. Davison and looked a bit surprising to him. Stone cutting issues are apparently a question for Nick Houghton.
[I made a couple of attempts to talk to Nick Houghton last week but was unsuccessful. See my notes below on the emerald grade -- the 0.1121 works out to about 3% yield on cutting and hopefully the company can do better but if the emeralds are very small perhaps we can't expect anything significantly higher.]
All things said, Mr. Davison maintained that this was a very good field season and there is good news to come out. Although so far we have an early estimate of only $20/tonne from the emeralds from the June 43-101 report, he points out that ShoreGold is looking at estimates in the same range for their deposit, the Tsa Da Glisza deposit has good tonnage, and that much more money can be made from jewelry sales than wholesale. The fact that the deposit is situated on a ridge makes it much easier to mine open pit. As for gem quality retrieved, Zambian emeralds, which are geologically similar,
account for a large portion of world emerald output, but the size and quantity of gems from these deposits is somewhat less than other types of emerald deposits so it is a matter of making money on larger scale operations. [I would counter that the ShoreGold diamond deposits are much higher tonnage -- hundreds of millions of tonnes, and Tsa Da Glisza is maybe more in the range of 8 million mineralized tonnes as a rough guess (see calculations below+) and a great deal of waste rock to move on top of that. Also, Saskatchewan is much closer to infrastructure and people with what one would assume to be lower costs. Right now, most of the value of the emeralds looks to be in beads, but there may be a limit on how much of this material the company can sell, particularly without incurring large marketing costs to generate demand.]
I have heard the following about Greg Davison
1) he is a top professional, having worked, for example, for SGS Lakefield Research
2) he has strong coordination skills and people skills, being especially good at getting a camp of workers working harmoniously and efficiently
3) he spends the company's cash very carefully
I think that these are all valid points, and I'm sure that he has good people working with him in the Yukon who it would be wise to retain. The emeralds deposit also might hold secrets related to profitability that have not yet been discovered in this huge ridge. At the same time, and this is just my opinion, but I have to be honest and say that I think success at Regal Ridge will involve a combination of luck and a lot of time and money. If this were Teck-Cominco or BHP Billiton, they might have the money for this type of venture, but as a junior going it alone for many years it is very, very difficult proposition to get to the point of proving for financiers or other skeptical parties that this deposit is economic.
IMO, TGX cannot afford to dilute away the equity of the company, including the ownership of what appear amazingly high grade, high value world-class ruby deposits that could multiply share price enormously if advanced properly, by diverting a lot of financing money into a more challenging deposit like Tsa Da Glisza. Unless investors get strong information on why we should expect much better numbers from Tsa Da Glisza than we have to date, I think that there is reason for skepticism. We will need to see what comes out from the news release, but I can only say, I really, really believe that TGX should reallocate Mr. Davison and his best people from the Yukon to work in Baffin and Greenland at least until the company can finance on much cheaper terms. They cannot afford to spend more than a nominal amount of their precious money and human capital on Tsa Da Glisza at anywhere near current share prices. Mr. Davison's patience and diplomacy would be very much needed to work in Nunavut, and his systematic and careful work would do much to help explore and advance the sapphire deposits, from which we so far can see much higher value per tonne than the emeralds and I would say a much higher return on investment.
*It might be a bit bold for me to say all this, and based on what comes out in news releases my opinion might change somewhat, but I have a very large personal investment in this company and I think that it is appropriate for me to provide an opinion to other shareholders and to management if they are reading. I do not have any biases other than to see the company succeed in making money and boosting its share price for people like me. I have talked to other parties and got their opinions on why Tsa Da Glisza should not be put on hold, but there is too much at stake I think to do anything but move quickly but carefully on realizing value with the rubies and to a lesser extent the sapphires, and the company does not have unlimited resources to spend on multiple projects.
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+Rough calculations on Tsa Da Glisza mineralized tonnage:
From the 43-101 report, relatively flat-lying mineralized horizons are 0.5 to 9 m thick, 5-15 meters apart and averaging about 1-2 meters in thickness. Emerald has been confirmed in 5 of 8 sets some areas 40m thick, and associated with vein structures that cross them. Steep dipping mineralized shear zones average 0.5 m thickness 5-7 m apart. From Mr. Davison I got estimates that the mineralization is across about 1 km length and perhaps 200-300 width and extending down 200-300 meters depth. If from this we assume maybe 10 horizons 1.5 meters thick across 1 km by 200 meter sections, we get:
10 * 200m * 1000m * 1.5m * 2.65 tonnes/metre cubed rock density
= 7950000 or about 8 million tonnes
Waste rock, assuming 10 meters average separating each horizon
200m * 1000m * 10m * 9 * 2.65 tonnes/meter cubed
= 47700000 or about 48 million tonnes -- 6:1 ratio waste to ore
43-101 report on emeralds for reference:
sedar.com
From pages 6 and 7 of the 43-101 report:
2533 tonne sample from 2003/2004
38.8 kg rough recovered [was all of the 2533 tonnes really processed?]
15.34 g/tonne emerald, including 6.25 g/tonne gem and near-gem
37.11 g/tonne for 2004 sampling
3.8248 carat per tonne polished grade
0.0859 carats per tonne gem [from 0.59 g/tonne reported elsewhere that is 3% yield on cutting]
0.0530 carats per tonne cabochon
3.6858 carats per tonne bead
9% appraised value from faceted gems
3% appraised value from cabochon
87+% appraised value from emerald beads
average appraised value $21.26 per carat gem
Deposit grade comparisons were released in the news release below (note that the sapphires and rubies are ealier stage, but I don't think there is reason to believe that the samples were skewed to be higher grade than is representative. Also note that the sapphires and rubies tend to be larger and have higher yield than the emeralds, so the difference in carats/tonne would be larger than in grams/tonne).
truenorthgems.com |
