Staking a claim in
Alberta's mini-diamond
rush
Junior explorers should draw plenty of
attention because of the lack of opportunity in
one-time exploration hot spots
By PETER KENNEDY
Vancouver Bureau The Financial Post
The sharp drop in metal prices is sparking renewed
interest in Canadian diamond juniors, particularly in
Alberta where about 50 companies have staked out land
positions.
Analysts attribute the interest to recent diamond finds in
Alberta by Ashton Mining of Canada Inc. and the
imminent startup of Canada's first commercial diamond
mine.
The Ekati mine of Dia Met Minerals Ltd. and BHP
Diamonds Inc. is scheduled to begin production this year
in the North West Territories.
"Alberta is going to attract a lot of attention,'' said Peter
Brown, chairman of Canaccord Capital Corp. during a
packed cocktail party last Monday to mark the opening of
De Beers Consolidated Mines Ltd.'s new Vancouver
office.
South African-based De Beers controls about 70% of the
global diamond market. Senior officials from the
company's London office have moved to Vancouver to
position themselves for future mining and marketing deals
with Canadian diamond juniors.
On Friday, De Beers followed that move by cutting a deal
with TNK Resources Inc. to explore the Toronto junior's
Botswana diamond properties.
While it is still far from certain that a diamond mine will
be found in Alberta, several companies are set to begin
drilling there in the next few months.
Leading the way is Ashton Mining, a 62%-owned
subsidiary of Australian diamond miner Ashton Mining
Ltd.
Under an agreement with Alberta Energy Inc., Ashton
and Pure Gold Resources Inc. can earn interests of 42.5%
and 15%, respectively, in 28 million acres covering a
geological formation known as the Buffalo Hills craton.
Ashton has so far found 17 kimberlites within the region,
which is thought to be about 500 kilometres long and 300
kilometres wide. (Kimberlite is carrot-shaped igneous rock
that often hosts diamonds.)
However, while 13 of those kimberlites contain diamonds,
average grades reported so far are about a third of Dia
Met's Ekati mine. Ashton has yet to prove that any of its
pipes contain diamonds in commercial amounts.
On Jan. 19, Ashton's stock (ACA/TSE) fell 75› to $5.55
when the company said two diamonds recovered from its
K14 kimberlite discovery weighed 1.31 carats and 0.32
carats.
The company also said rock samples were too small to
draw any conclusions about the quality and value of the
stones.
After continuing to slide, Ashton shares closed Friday at
$4.85, up 10›.
But that has not stopped 50 companies from picking up
diamond exploration permits in Alberta. A handful of them
are already mobilizing drill rigs.
For example, Vancouver-based Montello Resources Ltd.
and Redwood Resources Ltd. have started drilling on their
Jazz project which lies across the southern boundary of
Ashton's ground.
Montello (MEO/ASE), which rose 3› to 76› Friday, has
granted Redwood an option to earn a 50% stake in its four
million acre land area in return for payments of $6.5
million.
Other juniors expected to begin drilling at or near Buffalo
Hills include Vancouver-based Lucero Resource Corp.,
Meteor Minerals Ltd. and Primero Industries Ltd., as well
as Birch Mountain Resources Ltd.
Meteor is set to drill next Monday on ground optioned
from New Claymore Resources Ltd.
Since exploration is at such an early stage, analysts
consider these stocks to be highly speculative.
"But because they can double and triple quickly, they
attract gamblers,'' said John Hainey of Yorkton Securities
Inc. in Toronto.
Adding to the risk is the fact that geologists working in
Alberta have still to determine what controls the
emplacement of kimberlites in
Buffalo Hills.
Some observers are not impressed by the diamonds
recovered from Alberta so far.
"The quality is still questionable,'' said Robert Bishop, an
independent analyst based in California.
However, exploration is still at an early stage and these
stocks will likely get a lot of attention if only because of
the lack of opportunities in other former exploration hot
spots like Indonesia and Labrador.
"This sector is really one of the only ones where you
could see a rising tide effect,'' said John Kaiser, publisher
of the California mining newsletter Kaiser Bottom Fishing
Report.
"If one goes up, the others will too,'' he said. This implies
that the reverse would be true if results do not meet
expectations.
To spread the risk, Hainey is advising investors to buy a
basket of stocks, rather than focusing on individual
companies.
Investors are also being advised to look at juniors with
large land packages in and around the discovery area.
"There is no reason to think that Ashton has the richest
cluster [of kimberlites] or the only cluster,'' said Brian
Fagan, author of the Vancouver-based Fagan Report.
These are the companies being mentioned by analysts and
newsletter writers eyeing the Alberta diamond rush:
Pure Gold Minerals (PUG/TSE), which was unchanged
Friday at $1.13, has staked 52.6 million acres in Alberta.
Its holdings include a 15% stake in Ashton's Buffalo Hills
claims as well as 49% of 22 million acres surrounding the
Ashton ground.
It also has interests ranging from 50% to 100% in about
20 million acres in other parts of Alberta and southern
Saskatchewan.
Lucero Resource (LCR/VSE), which was unchanged
Friday at 67›, has interests in 500,000 acres. Lucero is
part of a stable of companies headed by Vancouver
geologist Jim Dawson.
Other companies in the group are Meteor Minerals and
Primero Industries.
New Claymore Resources (NCS/VSE), which rose 1›
Friday to $2.46, picked up 13.5 million acres ahead of
other juniors.
It has since struck joint venture deals with a number of
other juniors, including the Lucero group.
However, as there are only about 4.2 million issued shares
in New Claymore, the stock is considered hard to acquire.
Troymin Resources Ltd. (TYR/ASE), which rose 7› to
76› Friday, has staked four strategic blocks covering 1.1
million acres in the Buffalo head area. Geophysical surveys
are under way with results expected in early 1998.
Birch Mountain Resources (BMD/ASE), which was
unchanged at 70› Friday, has granted New Indigo
Resources and Lytton Minerals Ltd. rights to earn a 75%
stake in its 1.9 million acre land package.
To exercise that option, New Indigo and Lytton must
spend $5 million on exploration over four years and
complete a bankable feasibility study on any future
diamond find. Lytton and New Indigo are planning to
merge.
Mr Metals
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