Interesting reading from the web! incase some of you haven't seen it.
Symbol: KRT
Stock Market: VSE
Last 12 Months: $0.55 - $1.45
Current Price: $1.36
Shares Outstanding: 13.8 million
Fully Diluted: 22.5 million
Diamonds in North America
Four years ago no one, except for a handful of geologists, would believe that commercially viable diamond deposits exist in North America. That was before DiaMet
Minerals announced its discovery in the Northwest Territories. Since then there have been several other deposits uncovered after the expenditures of millions of
dollars.
Although not a single mine is in production yet, DiaMet plans to start production within three years. That's one of the reasons its share price rocketed from under
$1.00 to $60.00 in 14 months ending Dec. 9, 1992. Two other companies, Aber Resources and Mountain Province Mining, have deposits that have the potential to
become producing mines.
Joint Venture With Majors
Perhaps the most profitable mine for shareholders might not be in the Northwest Territories. I've uncovered a relatively unknown company that might be today's best
bet for profits from diamond exploration. Kensington Resources is an equal joint-venture partner with three major companies in 71 kimberlite pipes at Fort a la
Corne, Saskatchewan. The three partners are Uranerz Explorations and Mining Inc., Cameco Corporation and Monopros Ltd., a subsidiary of DeBeers
Consolidated Mines Ltd. of South Africa.
"What's a small company like Kensington doing in the big leagues?" I asked myself. Then I asked Kensington. The answers have me excited about the company and
I'm sure you'll share my enthusiasm.
World Class Property
The three majors started diamond exploration in Saskatchewan in 1988 and quickly discovered North America's largest known diamondiferous kimberlite field in the
Fort a la Corne area in Central Saskatchewan about 40 miles east of Prince Albert.
Some $15 million was spent to discover 71 kimberlite pipes of which 42 pipes have been drill tested. Of the pipes tested, 22 are confirmed as diamond bearing. This
is one of the largest clusters in the world and most pipes have an average mass twice that of pipes in the rest of the world.
The region is uniquely characterized by containing completely preserved kimberlite volcanoes. It is this preservation that results in individual pipes being very much
larger than in other worldwide clusters. The biggest pipe contains almost one billion tonnes and several others are estimated at over 500 million tonnes. By
comparison, DiaMet's pipes average 20 million tonnes.
Kensington finalized a farm-in on the 280 square kilometre project of the joint venture in March of 1995 by agreeing to spend $3.4 million over the next three years.
Results To Date
Last September Kensington announced excellent results from two 17 kg (37 lb.) samples from pipe No. 147. The micro-diamond counts per 10 kg (22 lb.) of each
sample were 19.4 and 14.7 stones. While the samples are small, these are encouraging results and comparable to Aber's average of 13.8 stones per 10 kg.
Kensington has announced that it has received the majority of the results from the 162 tonne mini-bulk sample taken during the 1995 exploration program and the
announcement was made on January 15th. The grades and stone counts were very good and Kensington is planning an expanded winter drilling program.
We do know that a high proportion of the diamonds found to date are of gem quality. This would indicate a higher value per carat for the stones once production
begins. Coupled with grades of better than one carat per tonne, speculators can start to believe that Kensington and its partners could have an economically viable
mine within a few years.
So far, over 3,500 diamonds discovered at Fort a la Corne have been examined, the largest of which is 0.987 carats with many others between 0.25 and 0.66
carats.
Another step toward that goal is the commissioning of Fluor Daniel Wright Ltd., a highly-respected engineering and consulting firm, to carry out a large scale
mining/milling operation on a typical kimberlite pipe in the area. This scoping study will determine the approximate capital and operating costs as well as the grade and
value parameters required for economic viability.
Potential Profits
While there is still much work to be done before a decision can be made, the potential for profits is huge. The profits from a potential mine could exceed $300 million
annually. My assumptions were an average grade of 0.7 carats per ton, diamonds worth an average of only $100 per carat, a cost of $15 per ton, and finally, an
annual tonnage of 6 million tons.
In my opinion, these results compare favorably with those of Aber and Mountain Province. Yet those two companies are capitalized (share price times shares
outstanding) at $280 million and $82 million respectively while Kensington's total capitalization is only about $19 million. If the numbers in the consultant's report are
any where near my assumptions, and once other analysts become aware of the facts, Kensington share price should do some serious catching up in order to put the
company's capitalization more in line with other similar companies.
Conclusion
Yes, there are diamonds in North America. Kensington and its partners aren't the only group to discover these precious stones. But Kensington's properties are less
than one hour from established infrastructure including roads, electrical power, transportation facilities and an experienced labor force.
As well, the plains of Saskatchewan aren't as environmentally sensitive as the fragile conditions in the tundra of the Northwest Territories. The Province of
Saskatchewan is highly supportive of mining as are its people and its unlikely that radical groups will launch frivolous protests.
Recommendation
The PROFITLetter recommends purchase of shares of Kensington Resources for aggressive speculators. The shares might well be valued between $4.50 and $5.00
in the near future so short-term gains to the $2.50 level don't seem unrealistic. |
