Diamonds & Specialty Minerals Summary for June 9, 2015
2015-06-09 20:44 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score for Tuesday was a disappointing 40-54-156. The TSX Venture Exchange fell four points to 681 while polished diamond prices gained 0.1 per cent. Nicholas Houghton's True North Gems Inc. (TGX) closed unchanged at 15.5 cents on 285,000 shares. The company is building a seasonal ruby and sapphire mine on the southwestern coast of Greenland. The build is on budget and schedule, and should be completed just in time to mothball it for the winter. True North thinks the mine will yield a tidy profit over the coming decade. Aubrey Eveleigh's Zenyatta Ventures Ltd. (ZEN) fell four cents to $1.55 on 224,000 shares. The stock, $2.50 last week, fell hard after a dream sheet for its Albany graphite play in Northern Ontario disappointed investors. It has since stabilized as the company presses ahead with its project.
Grenville Thomas and Ken Armstrong's North Arrow Minerals Inc. (NAR) tumbled 53 cents to 42 cents on 1.31 million shares, on word its 383.6-carat parcel of diamonds from the Q1-4 pipe at Qilalugaq in central Nunavut was appraised at just $36 (U.S.) per carat. These are the diamonds North Arrow dug out of the ground last fall and recovered earlier this spring in a 1,353-tonne bulk sample that carried a $3.7-million budget. The modelled diamond values were higher, as they generally are with small parcels, but the best spin that North Arrow's consultants could muster was a "possible high" model price of $92 (U.S.) per carat. The "possible low" valuation was $43 (U.S.) per carat.
North Arrow did not say what value its consultants, WWW International Diamond Consultants, modelled as a mean estimate, but it presumably was close to the average of the two, perhaps just under $70 (U.S.) per carat. If so, the average rock value at Q1-4 is barely $35 (U.S.) per tonne, based on the inferred resource estimate grade of 0.54 carat per tonne, or perhaps just under $20 (U.S.) per tonne if the bulk sample grade of 0.28 carat per tonne proves closer to reality. Mr. Armstrong, CEO, said the Q1-4 diamond parcel was very small and as a result, WWW concluded that the appraisal and modelled diamond values "should be treated with considerable caution" when it comes to assessing the Qilalugaq project.
A rush to caution comes a bit late for those investors who paid up to $1.34 per share in mid-April, after North Arrow touted the geochemical qualities of the yellow diamonds that accounted for nearly one-fifth the weight of the total parcel. Mr. Armstrong went on (and on) about the "intense yellow colours" within the Q1-4 parcel being "consistent with highly coveted canary yellow diamonds." Unfortunately, those intense yellows did not yield an impressive valuation: WWW appraised the 24.5 carats at just $46 (U.S.) per carat. (Perhaps those investors who were unimpressed with the pictures North Arrow posted of its Q1-4 diamonds in April, did exercise caution and sold for a tidy profit: North Arrow traded in the 50-cent range for much of last fall.)
Mr. Armstrong says North Arrow will "review options" for the cost-effective collection of a larger bulk test of Q1-4, which would allow the company to produce a "more confident assessment." There are precedents for larger samples yielding better diamond values. A 90-carat appraisal of the diamonds in Diavik's A-21 pipe averaged just $33 (U.S.) per carat -- perhaps $70 (U.S.) today -- but the current Diavik estimate is $145 (U.S.) per carat, based upon a significantly larger test. That is North Arrow's continuing hope: that a much larger sample will produce enough of the rare canary yellow gems will turn up to substantially boost the diamond valuation. Unfortunately, proving the point just got harder, as Mr. Armstrong will have to raise several millions of dollars from currently disappointed investors to collect a much larger sample.
George Read and Ken MacNeill's Shore Gold Inc. (SGF), unchanged at 19 cents on 335,000 shares, has tweaked its proposed stock option plan. The company now says "any non-employee director" cannot receive an annual grant of options valued at over $100,000. The change would apply to five of Shore's current slate of directors -- the sixth, Mr. MacNeill, is president and CEO. Shore has not granted its directors a large number of options in recent years. Nevertheless, Shore says that it proposed the amendment in (large) part to address comments raised by Institutional Shareholder Services Inc. (ISS). According to the ISS website, institutional clients turn to ISS to "apply their corporate governance views, identify governance risk, and manage their complete proxy voting needs on a global basis." What the ISS website does not say, but clearly implies, is that Shore's institutional investors are getting grumpy.
The value of Shore's options has been a moot point for the past several years because the company's stock collapsed from a 2007 high of $8.75 and has been oscillating around the 25-cent mark for the past three years. (This of course is the real reason shareholders are unhappy.) Shore began its first big drill program in several years a month ago. The company hopes to show it can start mining its huge diamond project in central Saskatchewan on the Orion South pipe rather than the adjacent Star kimberlite. Shore believes the switch will cut capital costs significantly. If it can do so, the stock options and investors' submerged stock portfolios might see the light of day.
Mark Smith's Largo Resources Ltd. (LGO), up two cents to 77 cents on 55,000 shares, still expects to achieve full production at its Maracas Menchen vanadium mine in Brazil during the third quarter. Largo says it set a new single-day production record of 23 tonnes of vanadium pentoxide, which is 87 per cent of the mine's design capacity. The company did not say how it did on the other 30 days, but its monthly total of 487 tonnes suggests the mine averaged about 60 per cent of capacity. Mr. Smith, president and CEO since April, says the $75-million Largo has just raised is allowing the company to "aggressively address remaining optimization projects" -- rush to fix the remaining snags in other words -- which should be completed over the next few months. Although all signs suggest Largo can meet its target, it is unclear if Maracas Menchen will yield a promotable profit. Vanadium prices have fallen to their lowest point in years, providing an added incentive for Largo to optimize its operation.
Rodney Irwin's Stans Energy Corp. (HRE), up one-half cent to 6.5 cents on 127,000 shares, has reached a "litigation financing agreement" with the Calunius Litigation Risk Fund 2 LP. Mr. Irwin says Calunius has agreed to help finance Stans's legal costs and its continuing corporate overhead expenses. Stans is trying to collect a $118-million (U.S.) award granted it by a Moscow tribunal last year. The tribunal decided that the government of Kyrgyzstan had prevented Stans from working its Kutessay II rare earth project. The company's task got harder last month when a Moscow court overturned the award on procedural grounds. It is now appealing that decision.
Mr. Irwin had been trying to raise $2-million to cover its legal costs, but he brought in just a fraction of that amount, prompting his latest deal. He says Stans will only have to pay Calunius "a portion of any final settlement of the arbitration claim." (The arrangement is akin to the deals hawked by lawyers on afternoon television ads: "We only get paid if you win!") Mr. Irwin assures investors that he and his crew continue to have control over the conduct of the arbitration proceedings, adding that the fee it (hopefully) will have to pay would be dependent on the size of the settlement and the length of time taken to collect it. |
