Scanned version of the Deutsche Bank Report. May contain spelling errors from conversion. Many thanks to a very generous gentleman who spent many hours working on this. May take several posts.
Deutsche Bank Secl
VSE S3.06 _
Winspear Resources Ltd. Phone#-
Initiating Coverage
· Snap Lake Coming into Focus
· Caustic Fusion Data Support Consistency of Grade
· 6,000 tonne Bulk SampIe this winter, Resusts by June?
_ George V. Albino 416 682-81 77
Curr. Rel, Speculative
OUTPERFORM Shares Basic (MM) 39.1 Wof king Cfffp ~ jlZ4
Shares FDIT (Mln) 44.7 Wot knn ~itp _ ~Er
Market cap FDITM($Min): $137.8 LT ,Debt & r
EquA~.fs Yof~n) _ _
HIGHLIGHTS
· WINSPEAR’s principal asset is an approximatly 68% interest in the CamselI Lake dianond project (32%
- Aber Resources - ABZ TSE: $10,30) located in the Northwest Territorie.
· ExpIoration over the past 2 years has focused on the Snap Lake portion of the property, where a
subhorizontal kimberlite sill (with an average thickness of 2.7 m) has been encountered in driIl holes over an
area of 200 ha
· Aportion of the siIl has been drilled in detail , outlining a likely l.35MM tonnes of kimberlitr (65O,OOO
tonnes open-pittable)
· A mini-bulk sample of approximately 200 tonnes taken from 2 plts 250 m apart yielded an average grade of
1 . 1 4 carats/ tonne.
· An eva1uation of the 227 carats from this sample was made by several diamataires giving an estimated
average value for the parcel of $301/carat.
- · Widely spaced drilling suggests the possibility of we11 in excess of I 0 MM tonnes of kimberlite
· Micro diamond results from drilling are consistent with those from the mini-bulk samples, supporting
extrapolation of grade to the larger tonnage.
· A 6,000 tonne bulk sample is planned for this year and the eompany and Aber are more than adequately
funded for this program.
* Despite the stock’ s strong performance over the past 4 months the possibility of a large high-value
orebody at Snap La ke leaves potential for significant upside for WSP
Snap Lake * History
Wmspear and its joint venture padners hive beerl exploring ~e Camsell Lake properry for 7 years iind previoush-
dis sipif cant diamandiferous kkberlite pipe CCL 25) ~at laltirrlatdy vwas judged roo loT grade to wacaot f~gr
work. The back to life irL iate 1996 ho vever vvith dle companv a anno~eement that it had dise~ vered highly
diaiTlondifetaus greu woli as kimberlig boulders near Snap Lal~ 1O aTed near ~e V eaem edge of the Camsell
Lake propery Chont'dT,,)
02/10/99 18: 21 604 687 1405 11 002/007
(page 2, Winspeary
Subiequent drilHng ar Snap Lake was, on e face of it, disappointins, with no large kirnDYlite pipcs locad, dthough
an apparentlyblind pipe-like body was eneounrred at anomaly CL186 (the kimberlite is diamondiferous and the
story ·nay not be over there yet.). Most of the kimberlite intersetions were narrow (less than 3-4m) apparantly
dikes. Tt was only arter geologioal interpretation by the company suggested that a large number of these
intersections on the west and north shores of Snsp Lake (see map) saemed to hang together, that the idea of a
large, coatinuous flat-lying "Sill" came to the fore. Winspear then had thc confidence, based m inly on encouraging
microdiamond counts from drill core, to pursue exploration of the sill in the face of \videspread skeptieism (thr
stock traded down to $0 43 in iane, 1995) This mainly involved collecting and procesing approxmetdv 200 tonnes in
two "mini-bulk" samples from the siill (from sites now referred to as "Pit 1" and "Pit 2").
Interest in Winspear began to piek up with the anouncement, in mid-Jtme 1998, that the 200 tonne sample had an
average grade of just over 1 carat/tonne - encouraging certainly, but given the nature of the kimberlite (i.e. a sill
asopposed to a larger pipe) this news did not ignite the market despite the company indicating that three large gem
diamonds were included in the sample. The next news release, however did get people ‘s ayyention In this
release (June 22, 1998) Winspear indicated that the 226 carats recovered from the mini-imnlk sumple had an
averag value of over $300/carat(. Tllis - suggesting as iy did
posible ore " with a value over $300 (US) - made the market sit up aad take notice, and the stoek quickly reached
$2 before settling baek to about Sl.00 whereit stayed rhrough most of the fall of 1998.
We began following the stoek closely at this point, but were wairing for some key data before formally beginning
coverage, namely microdiamond data that could tie together the mini-bulk samples and the rest of the sill. What we
were looking for was reassurance that the two sites that had yielded the 226cts were representative of the drilled
extent of the sill. We knew that Winspear had taken approximately 500kg of samples from pit 1 and Pit 2, aud were
planning to proeess these using "caustic fuslon", the technique typically used for microdiamond sanmpling of drill
core. These data would put the mini-bulk samples and those fron the expIoradon drill core on a level playing field,
and allow comparison between the two types of sample.
Unfortunately the 500 kg of kimberlite was behind the gate at the strike-bound Con mine (owned by by Miramar
Mining MAE.TSE) inYellowkniiferand and the cornpany was forced to negotiate with the union to liberate the
samples. Between this delay and the long time Taken to process aod then interpret the samples, we have waited
almost 6 months for the microdiamond daa.
Several weeks ago the company released the microdiamond data for the mini-hulk samples and for 87 core drill
holes. As we discuss in detail below, the new data suggest that the silI is remarkably uniform ia its microdiamond
content, and that the size distribution of the diamonds is also very uniform. The drill hole data, which we believe
represents a kimberlite body well in excess of 10mm tonnes, agrees well with the data from the mini-bulk samples.
If anything comparison of the drill hole data with that from. Pits 1 and 2 suggests that diamond grades could
inaease.
1999 Plans
We will knuw the answer co the grade question, probably by May or June. Winspear aad Aber have comrnitted to
a Sl2 mm program to take bulk samples totalling approximately 6.000 tonnes from three sites (two on the northwst
peninsula, and a third on the north shore of Snap Lake). Ihe kmberlite will be trucked to an off-site processing
facility, which we suspect may be the idle Lyiton Minerals (LTL - TSE) plant located at the Lupin mine site. We
estimate that the sarriple will be taken and processed by MaY or June, and the diamonds valued by July or
August. We are unsure if tne company will release grade data as soon as it isavailable, to be followed later by the
diamond valuation or or whether it will release ail the informationa together in July or August.
02/10/99 18: 22 ~604 687 1405
CPage 3, Winspear)
The Snap Lake Sill System - Tonnage Potential
Aproximately 90 core holes have been drilled to date at Snap Lake, defining a shallow-dipping sheet (sill) over an
area (possibly up to 1,600m by 2,000 m) (see map). Within this body the nature of the kimberlite (including rock
texture and mineralogy ) as well as information on geomtry (e.g. thickness, depth in the drill holes) are all
consistent with the body which Winspear has christened the "northwest dike" being a single, continuous sheet. In
part of this area of Winspear has drilled 79 holes on the shore of Snap Lake. providing an average spacing of about
70 m, and confirming tbe silI’s cortinuity in this section (the
northwest peninsula).
The area of detailed drilling is estimated by MRDI (part of Simons Engineering) to contain a resource of
approximately 1.35 MM tonnes kimberlite (all on land), The big prize, however, is rhe much larger part of
the sill projected under Snap Lake. If the sill is continuous between the existing drill holes we estimate that a
total resource of 15.5 MM tonnes is possible (1,0O0 m by 2,000 m by 2.7 m thick, and assuming a density of
2.9 tonnes/cubic meter).
A second dike/sill set located under the southeastern part of Snap Lake (referred to by the sornpany as the
Southeast dikes) seems to be geologically similar to the Northwest dike. The dikes located thus far could contain
several million tonnes of kimberlite based on the drilling to date. As noted below, the microdiamond population of
the Southeastern dikes seems to be indistinguishable from that of the Northwest dike. The Southeastern dikes dip
to the northwest (i.e. the opposite direction to the Norchwest dike), and it has been suggested that the different
dikes couid have a common source. The CL 186 area (where drilling in 1997 intersected kimberlite breccia) lies
more or less shere the Southeastern and Northwest dikes would be projected to intersect, and potentialy
represents the source area or feeder for the kimberlite sills.
Leaving aside any discusion of the known bodies forming part of o much larger "cone sheet", we believe that tiie
drilling through the end of 1998 suggests a tonnage of kimberlite in excess of 15 MM tonnes, and in excess of 20
MM tonnes if the Southeast siIls are considered. This is clearly sufficient to support a 3,000 tonnes/day mine (the
geometry of the kiaberlite and ·he issue of the lake would make anything larger difficult) - the key variables that
are tougher to define are: 1) the grade of kimbalite (i.e. carats per tonne, and: 2) the value of the diamonds
($/carat). We think that there is already good reason to be
optimistic on the first point, but that establishing the value of the diamonds to the extent that the kimberlite can be
classed as reserve will be difficult. This has implications for timing of projet advancement, how the project ean he
financed, and tberefore the ultmate value of Wmspear shares.
Minibulk Sample Results - Grade and Valuation
As Winspear reported in June of last year, the mini-bulk sample program at Snap Lake involved collection of 105.7
tonnes from Pit 1 and 94 tonnes from Pit 2, the two sites separated by 25Om (see detailed map of NW Pcninsuld.
The two sites yielded 90 7 carats frorn and 138.2 carats, from Pits 1 abd 2, respectively giving grades of 0.86 and
1.47 carats/tonne.
Although full details of the stone size distribution have not bem provided the eornspany did report that three
diamonds 1arger than 5 carats (10.8, 8. 4, and 6.04 carats) were recovered. An additional 22 stones greater than 1
carat, vith a total weight of 42.4 carats (for an average of I.9 carats) were also found. Winipear indicated that of the
Iarge diamonds (the lO.8 carat stone) was found in pit 1 and the other two in Piy 2. Seven of the l to 5 carat stones
came from pit l and l5 from pit 2.
Using these data we infer that in each of the pits between 25% and 35% of the total carats corne from the +l carat
diamonds, with an average of about 30% fur the two pits combined Thii is indicative of a stone populadon weighted
towards the very coarse side , but is not unprecedented. A reasonable parallel is Klipspringer project of
SouthernEra Resources (SUF - TSE: $7.05), where the exploration results from the Leopard Fissure (28% > 1
carat), thc Sugarbird Blow (30% > 1 carat), the Kudu Blow (38% > l carat), and the M- 1 Pipe (38% > 1 carat) are
companble vith dlose from Snap Lake.
02/10/99 18: 23 g604 687 1405 @ 004/007
(Page 4 Wirlspear)
Notably both Klipspringer and Snap Lake are "Group 2" kimberlites (as are all of the other South Afnoan
"fissure" deposiIs) whioh comrnonly have a high proportion of large diamonds.
The market has focused on the high proportion of the total value of the Snap Lake diamonds thax is carried by fhe
3 largcst stones.In it’s release of January l5 Wirspear notes that those stones which make up slighdy more
than 10% of the weight recovered carries appaamakly 75% Of the totai vatue of the 226 carat parcal (from
Winspear's fIgures we infer a vaiue for those diamonds of $2035/cara4). The average value of the remaining 201
carats is given as $86.26/carat which we believe likely breaks down intp something like $175-200/carat for rhe
remaihing +t earat diamoads and $50-55/carat for those diamonds less than 1 earat (compare this to an average
value for diamonds from the Diavic projeot of around $60/oariat).
We feel it is usefu to focus more closely on the valuation data for the Snap Lake and how it gompares with other
kimberlite deposits. As shown in thc table beiow there are a few kimberlites with average values in excess of
$200/caraL but aI this point none are known with vdues exceeding $285. Again it is worthwhile noting that most of
the very high value kimberlites like Snap Lake belong to Group 2.
Table - Parcel Values of other Group 2 Kimberlite Deposits
Deposit
Value (/carat)
Blellsbank (Rex}
$285
Koffiefontein
$211
Koldu
$200+
Kudu (explortion sample} - Klipsprincer
$203
Ardo
$200+
Bellsbank (Messina)
$185
M-l (Marsfonteln - Kiipspringer
$170
Leopard - Kllpspringer
$130
Star (Rex)
$114
Sugarbird - KliDspringer
$112
Source - Company Reports and DBS estimates
To look at the eoncenkrarion of value in the small nurnber of >1 carat stones we hive fewer comparable data. Rex
tDamonds (RXD-TSl~:$lAi) rerports a general breakdown of revenues and values by diamond size from their
South African operations, indicating that about 77% of their revenue comes from diarnonds over O.85 carats,
which represents 32% of their production by weight
It is generally accepted that the value of diamonds recovered from exploration samples tend to underestimate the
actual value of diamonds in the deposit as a whole.This is because the scarcity of the larger ( and rnore valuable)
diamonds leads them to be underrepresented in
small sample (and we would consider 226 carats small). The flip side of this is the danger that one (or a few) large
diarnoads can bias the vaiuation results upavards quite substantielly m a small sanple. Were the Winqpear
valuation dominated by a single, large, high-vaiue diamond we vould be signifieantly more cautious. It is our
experience, however, that "getting lucky" with one diamond is possiblo, but that with three stones each oanying a
substantial part of tiie parccl’ s value the likeliihood that the veey hiigh valuation obtained for the Snap
Lake diamonds is gossly inflated is, we believe small When er say this, it is still withi the feeling that, in the finai
anaiysis the vaiue may be oloser to S200 than $300/caraL Possibie upside in grade (see below) may iargely
compensate for a likely lower value, however.
New Causti Fusion (Microdlamonf) Data
In our opinion, through WSP s ran-up to armost $5. 00, the big gap in the story was the availability of data that
allowed comparison beween the two mini-bulk sample sites (Pits 1 and 2) and the much larger inferred kimberlite
body. The January 26 release provided this "rnissing linle", and in our opinion dle data eould hardly have oeen
more posidve The market response has mostly been the opposite however, \vhkh we feel is mostly due to the
opaque nanare of the new data.
Dia mond Abundance
The data (see table) show that in terms of diamond abundance (as stones normaiized to sample weight) the drill
hole results are fully comparable with rhose from Pits 1 and 2, and are in fact better. on average, better even than
the higher grade Pit 2. This applies to all areas, inrluding the norihwest dike samples, thle dovn-dip drill holes, the
north shore sampIes, as well as the gaologically distinct Southeast dike IIt also appiies to diamonds in all size
classes, from the <015 mm to the >l .O8 mm. In rhis connection we note that looking just at the data for the two
pits. the total diamond abundanee (oalculated as stones/ tonne) correlates very well wkh grade
(continued .)
(Page 5, Winspear)
of th two samples, and that with a greater stone count in rhe driil core samples the possibility of a grade of around
1.5 carats/ yonne is reai. This may serve to comper sate should the diatnond values not be rnaintained at the
present estimate of $300/oarat
MacrorMiero Ratio
The other important variabIe in assessing the significance of caustic fusion data, in adition to absolute stone
abundance, is the ratio of larger to smallar diamonds. Because most drill sarnpies are too smali to expect
ommercial-size diamonds to occur, this ratio provides critioal information. Since the dimnond exploration boom
began in 1991 it has been traditional in Canada to report "micro" and "macro" diamonds, with macrodiamonds
defined as those writh a maximum dimension greater than 0.5 mm. In other Canadian kimberlites thc the
micro/macro ratio typically ranges between 2:1(verygoodl) to more than 10:1(not so good). ln this current release
Winipear has broken with this tradition, and reports diamond abundance in terms of square mesh size (which is
rnore defensible on technical grounds). Looking ar the table it is clear that for the ratio of diarnnnds <0.30 mm to
those >0.30 but less than 1 08 mm, that the population represined in the pit samples is similar to fhe drill core data.
For the larger stones (.1.08 mm there is more the scatter,in the data, but this is not unexpected, as the odds of
finding a +I mm stone in some of the very small samples (less than 40 kg) are smalL Nonetheless, if we take all the
drill hole data together and cornpare it to the Pit l and 2 data the proportion of larger diamonds is actually
somewha£ higher in the drill hole samples. All this comes together to suggest that there is no reason to expecy any
fewer large diamonds in the dike as a whoie as oompared to the onginal mini bulk sarnples.
.
Commerrial-Size Diamonds in the S, plei
Looking closely at the recent Winspear release brings up another poin we see as very favorable, and one that
seems to have been mostly overlooked by the rnarket. In the approximately 1.7 tornes of the northwest dike
treated oy caustic fusion and discussed in rgis retease. at least 6 diamonds larger than 0.1 oarat (anld therefore
certainly of commercial size) were recovered. These include two diamonds larger than 0 5 carats (0.75 and 0.69
carats), and have a total weight of almost 2.5 carats - therefore on these stones alone the samples had an average
grade of 1 45 caratsftonne, in line with thc higher grades encoumered in Pit 2. We also rernind the reader that,
beeause of the log-normal distribution of apparent grades in kimberlite siunples, smail samples (such as the drill
cores) are more llkely to understate, than oventate, diarnond grade.
Table 2 · Riauits of Caustic Fusbn Analysis, Snap Lake
SAMPLE
SAMPLE
WT
STONE>.15<.30
MM ST/10KG
NORMALIZED
STONE>30<1.08
MM ST/1000KG
NORMALIZED
STONE>1.08
NORMALIZED
ST/1000KG
RATIO
<.03
l<1.08
RATIO
<1.08
:>1.08
PIT 1
262.0
19.2
484.0
26.7
3.97
18.1
PIT 2
274.0
36.5
879.0
7.3
4.15
20.4
1-11
53.8
39.3
744.0
37.2
5.15
20.0
J-11
368.4
40.8
983.0
57.0
4.15
17.2
J12
86.6
31.9
895.0
12.1
3.56
74.0
K-11
240.8
40.1
1042.0
41.5
3.85
26.1
K-12
88.1
37.4
1022.0
11.6
3.56
88.1
DETALED
AREA
369.1
35.0
864.0
24.3
4.17
35.6
NORTH
SH
38.7
50.1
1136.0
0.0
4.41
N/M
BW DIKE
DD
33.4
33.0
810.0
30.0
4.-7
27.0
SE DIKE
A
18.6
46.2
1130.0
0.0
4.0
N/M
SE DIKE
B
42.4
41.5
1157.0
94.4
3.59
12.3
SE DIKE
C
82.3
31.6
658.0
24.3
4.73
27.5
Source: DVS estimat and company reports
Share Impact and Evaluation
As should be clear from the above discussion, we consider the present results very positive for Winspear, as they
strongly suggest that the ongirlal two mini-bulk samples were collected from sites representtaive of lhe rest of the
body. The new data make it clear that the diamond populations in lhe mini-bulk aempies, end the 'oody as a whole
are ompleteiy compatible. The larger recovered during the caustic fusion yield a grade of at least 1 .45
carats/tonne, similar to that in the higher grade of the two original pits |
