Winspear's Camsell Lake history
Winspear Resources Ltd WSP
Shares issued 39,238,388 Jun 4 close $4.82
Mon 7 Jun 99 Street Wire
WINSPEAR AWAITS BULK SAMPLE RESULTS
by Will Purcell
Winspear Resources Ltd. awaits preliminary results from its estimated
$12-million 1999 spring exploration program at Snap Lake NWT. Over the next
six weeks the market should receive grade and valuation data for at least
half of a 6,000 tonne bulk sample extracted from the northwest peninsula,
immediately to the west of Snap Lake. In addition, a drilling update and
caustic fusion results from the spring drill program are expected.
The Snap Lake dyke system is located on the northwestern end of the Camsell
Lake property, which is jointly owned with Aber Resources Ltd. Winspear
currently holds a 67.76 per cent interest in the property. The joint
venture participants are currently involved in a legal dispute concerning
the participation of Aber in the current exploration program, and ownership
percentages may be altered as a result.
The property has changed hands more than once through the past eight years,
and the ownership has been varied on several occasions. Indeed, the current
owners appear lucky to have acquired their respective shares in the
project.
The Camsell property was acquired in 1992 by Amarado Resources Ltd. from
R.T. Heard and Associates for $334,000 and 200,000 shares of Amarado. Heard
retained a four per cent gross overriding royalty for diamonds and a two
per cent net smelter royalty for metals, a right it maintains to this day.
Amarado promptly entered into merger discussions with Kestrel Resources
Ltd. and Golden Lake Resources Ltd. Late in 1992, the three companies
agreed to a plan which was to be submitted to their respective
shareholders. Under the terms of the deal, Amarado shareholders would
control 36 per cent of the new company.
The shareholders of Kestrel and Golden Knight approved the deal, but
Amarado directors suddenly decided the merger was not in the best interests
of the company, citing certain material matters that had not been disclosed
to them. Kestrel and Golden Knight ultimately merged on their own, and Ella
Resources was born. Meanwhile, Amarado promptly sought new partners to
assist with the Camsell Lake property. Early in 1993, Amarado struck a deal
with Winspear and Commonwealth Gold Corp. Amarado would transfer a 40 per
cent interest to each of Winspear and Commonwealth, in return for each
making cash payments of $140,000, effectively placing a valuation of
$700,000 on the Camsell property. Under the terms of the deal, Winspear and
Commonwealth were to be joint operators of the property.
Another company entered the picture as the diamond play became a frenzy
during 1993. Former broker, Dalton Dupasquier's Consolidated Newgate
Resources Ltd., negotiated a property swap with Winspear through which
Newgate acquired a 10 per cent interest in the Camsell property in exchange
for a one sixth share in Humpy Lake ground. The joint venture now consisted
of Commonwealth, Winspear, Amarado, and Consolidated Newgate; holding 40,
30, 20, and 10 per cent interests respectively.
Magnetic and electromagnetic airborne surveys were conducted during 1993,
and a limited till sampling program located areas with significant
indicator minerals. The following year, drilling of the more prospective
targets began. That fall, the joint venture announced it had successfully
intersected kimberlite on the CL-25 target. Complete caustic fusion results
were available early in 1995. A total of 350 kilograms of kimberlite
contained 221 diamonds, only 9 of which were classified as macrodiamonds.
Based on these results, an additional $1-million budget was proposed for
1995.
The increased expense was too much for Amarado, which apparently missed a
cash call and suffered dilution as a result. The company was changing its
focus to trendier southern Africa, and had recently changed its name to
AfriOre Ltd. as a result. The AfriOre interest was reduced from 20 to 14
per cent, with the other shares increasing proportionally.
In the fall of 1995, Winspear and Aber reached agreement whereby Aber would
transfer its 43 per cent interest to Winspear in return for shares,
sufficient to give Aber a minimum 35 per cent interest in Winspear. The
deal was never consummated, however. Had it been, Aber would have acquired
approximately 5.5 million shares of Winspear, which at the time were
trading in the $1.25 range. This suggested the market value for the Camsell
Lake property was approximately $16-million. Fortunes shifted quickly, when
just three months later, Consolidated Newgate increased its interest to
25.4 per cent by purchasing AfriOre's remaining share for $275,000. This
transaction implied the Camsell Lake property was now valued at only
$1.9-million.
A second kimberlite was intersected during 1995. The CL-174 target was
found to contain 44 diamonds in 51 kilograms of kimberlite. Only one of the
diamonds was classified as a macrodiamond. A fall till sampling program
identified two indicator mineral trains originating from multiple sources
in the area around Snap Lake. Based on this, the focus switched to the Snap
Lake region, and a $2-million budget was proposed for 1996.
Drill results were never formally announced, however it is believed the
joint venture drilled approximately 100 shallow holes in the area in an
attempt to find the source pipe. The 1996 drill program did intersect what
was believed to be four separate kimberlite dykes. In addition, kimberlite
boulders were found at five separate locations. Samples of the boulders
weighing only three kilograms contained eight diamonds, one of which was
1.9 millimetres long and appeared to be a fragment from a larger stone. In
addition to the diamonds found in the boulders, diamonds were recovered
from till samples taken to collect indicator minerals, and others were
recovered from green clay material found in the vicinity.
That fall, Winspear and Newgate, now named Antler Resources Ltd., announced
their intention to merge. Under the terms of the deal, Antler shareholders
would receive 2.5 shares of Winspear for every Antler share held. On a
fully diluted basis, Winspear increased its ownership of Camsell Lake by 80
per cent while its share base grew by close to 90 per cent. Winspear's
board of directors also grew, adding Mr. Dupasquier, Mike Muzylowski, and
Alfred Turton from the Antler boardroom. Winspear's Randy Turner continued
as president of the amalgamated company.
It seemed a good deal for both companies, and the deal was promptly
ratified by the shareholders. Winspear now held a 57.3 per cent interest in
the property, with Aber holding the remaining 42.7 per cent. The deal,
formally completed in January of 1997, saw 15 million Winspear shares
issued to Antler shareholders. At the time, the market value of these
shares was in excess of $50-million, and the transaction implied a market
value of close to $200-million for the Camsell Property. What a difference
a year and a good market made.
The 1996 exploration campaign again failed to find a kimberlite pipe, but
results were highly encouraging in other respects. The till samples
contained an abundance of indicator minerals, and a total of 26 diamonds
were found in these samples. Certainly, the best indicator mineral to
establish the presence of diamonds are diamonds themselves. Caustic fusion
of boulder material yielded a surprisingly high number of diamonds having a
length in excess of one millimetre, and a very high overall diamond count.
Caustic fusion of the kimberlite from the dyke intersections yielded an
abundance of diamonds as well. A total of 11.8 kilograms contained 14
stones, of which five were macros. An even more energetic exploration
budget was approved for 1997, and the search for the source was on.
The spring drill program completed 37 holes, for a total of more than 6,000
metres. Thirteen holes intersected a kimberlite dyke on the northwest
peninsula, while two others intersected over 100 metres of kimberlite
breccia in an anomaly identified as CL-186. The remainder of the holes did
not intersect kimberlite. Most of the holes were fairly shallow, and in
retrospect were not drilled deep enough to reach the dyke in other parts of
the lake. The main thrust of the drill program was to find a pipe, and the
dykes were just an interesting, if not confusing, sidebar.
Caustic fusion analysis of 137.1 kilograms of kimberlite from the northwest
dyke intersections revealed a total of 401 diamonds, of which 149 were
macros. Of these, 25 were larger than one millimetre. The largest stone
recovered measured 1.8 millimetres in length. Samples from the breccia were
also diamondiferous. A 154 kilogram sample contained 125 diamonds, of which
42 were macros. The largest stone recovered from the breccia material was
1.5 millimetres in length. Most of the diamonds found in the breccia were
in the lower portion of the target.
Winspear announced in the summer of 1997 that the weighted grade of the
northwest dyke intersections was computed to be 3.69 carats per tonne. This
calculation was based on a very small sample size, and included all macro
diamonds. As a result, this grade figure was not realistic. In a commercial
operation, only those stones larger than two millimetres maximum dimension
are generally recovered. Just under half of the diamonds were described as
being white, or colourless, and almost 90 per cent were transparent. The
market's fancy was caught by the statement that 15 of the stones were pink
or green. The statement did not catch the fancy of Aber, apparently. Future
news releases by Winspear failed to identify its joint venture partner by
name, apparently at Aber's request.
The summer and fall of 1997 saw a concerted effort to find a Snap Lake
pipe. Over 2,200 metres of land based drilling in the vicinity of the
CL-186 target failed to identify any significant kimberlite bodies. On a
brighter note, a new boulder field was located on the south side of the
lake. A total of 494 diamonds were recovered, including 169 macrodiamonds,
from boulder samples weighing 214 kilograms. Of these, 25 were in excess of
one millimetre in length, and seven exceeded two millimetres. Three were
longer than three millimetres, with the largest reportedly 3.5 millimetres
in length.
The Snap Lake area was now an intriguing and exciting prospect. The caustic
fusion results from the dykes and boulders compared favourably to the
results reported by Diavik and Aber from their A-154 and A-418 pipes. All
that was needed at this stage was a long kimberlite intersection that would
suggest a pipe had been found. Meanwhile, perhaps as a fallback position,
Winspear began to consider extracting a 10 to 20 tonne minibulk sample from
the northwest dyke.
Winspear began 1998 with new hope. The company proposed a $2.7-million
exploration program which was to include a 200 tonne minibulk sample of
dyke material from the northwest peninsula. Winspear shares had reached a
high just under $5 in early 1997, but had steadily been sliding in the
aftermath of the Bre-X scandal, along with the rest of the junior
explorers.
Things turned from bad to worse in February, when Aber announced it would
not be participating in the exploration program. As a result of this
decision, Aber's interest in the Camsell property was diluted from 43 per
cent to approximately 32 per cent. In effect, Aber transferred a 10 per
cent share of the project for $1.15-million, which suggested Aber believed
the property as a whole was worth less than $10-million. This belief was
supported by the market as well. By May, Winspear was trading for less than
50 cents, which implied a market value of only $15-million for Winspear as
a whole. Another year, another dramatic reversal of fortune.
The tide swung again in June of 1998, with the release of the minibulk
sample results. The northwest dyke was found to have a grade of only 1.14
carats per tonne, but each of those carats was valued at a whopping $301
(U.S.) per carat. The overall value of the sample was therefore $344 (U.S.)
per tonne. This was the highest valuation obtained in the region, eclipsing
the approximate $300 (U.S.) value for the A-154 south pipe of the Diavik
project.
Suddenly, Aber was back on side. A fall drill program was jointly funded by
the partners, and a scoping study was completed by MRDI Canada, which
suggested a modest open pit and underground operation was feasible, and
would be highly profitable if the minibulk valuation was accurate. Caustic
fusion results from the fall drilling program indicated that the diamond
counts for the Snap Lake dykes were remarkably consistent, and the drill
intersections were rapidly establishing available tonnage. Early this year,
Winspear again traded briefly near the $5 mark. The implied market value of
the Camsell property was now approaching $300-million.
While investor interest in the project was reaching new highs, the
relationship between the joint venture partners was reaching new lows. In
mid-March, Aber and Winspear disclosed that Aber's participation in a
proposed $12-million exploration program was now in dispute. Aber filed a
statement of claim, and Winspear filed a defense, and stated they intended
to "...vigorously defend the action brought by Aber."
Winspear has experience in this area. In 1992, Greater Lenora Resource
Corp. agreed to acquire a 60 per cent interest in Winspear's Providence
Lake claims, in return for cash, shares, and an exploration expenditure.
Early in 1993, Winspear announced the agreement was terminated, as Lenora
had failed to make the required cash payment. Greater Lenora promptly filed
suit. Winspear responded, stating it intended to "vigorously defend this
lawsuit, which the company believed was ill-conceived." Regardless of its
conception, the dispute was settled a short time later when Winspear agreed
to reimburse Lenora for its exploration expenses to date. The stakes are
clearly much higher in the current dispute, and such an amicable resolution
may be much harder to come by.
The Camsell Lake property has long been a favourite of industry analysts
and investment newsletter writers. While the original MRDI study proposed a
modest 1,000 tonne per day operation, analysts have been much more
optimistic in their forecasts. In February, George Albino of Deutsche Bank
Securities rated Winspear as a "speculative outperform", based on his
assumption of a 3,000 tonne per day mine. Using a rock value of $260 (U.S.)
per tonne, Mr. Albino estimated a net asset value of $9.30 per share,
discounted at eight per cent.
Recently, Art Ettlinger of Yorkton Securities suggested a 12 month target
of $7 per share for Winspear. He envisions a 2,000 tonne per day operation,
based on 10 million tonnes of ore. Mr. Ettlinger said that the possibility
exists for an increased rate of mining, resulting in additional upside
potential, noting that the available tonnage could be expanded as a result
of the current north shore drill program. He describes Winspear as "still
an exploration play", but believes the company represents a speculative
buying opportunity.
While most brokerage analysts covering Winspear have been making or
maintaining buy recommendations, some prominent investment writers have
been urging their subscribers holding Winspear shares to lighten their
portfolios somewhat.
Winspear has long been a favourite subject of John Kaiser's Bottom-Fish
Tracker. In January, Mr. Kaiser suddenly advised his readers to beware of a
speculative bubble building in the market. His contention that 75 per cent
of the value determined by the minibulk sample was contained in just three
large diamonds was ultimately confirmed by Winspear. He suggested to his
readers that they sell one-quarter of their shares and keep the balance. In
a May 31 report, Mr. Kaiser speculated that Winspear may now have enough
information to assume that the results of the current bulk sample will be
good. He concludes that his "...interpretation is that the Winspear Dream
Bubble is now properly equipped to sail north of $10...". Nevertheless, he
recommends that his readers be prepared to sell a portion of their holdings
into the rising market.
Sudhir Khanna, writing in his Resource Indicator newsletter, remains
bullish about Winspear's prospects, but also recommends that shareholder
take profits along the way.
Perhaps the last word should belong to Canaccord Capital analyst David
James, who has long been bullish on Winspear's chances. In a February
report, which was seemingly oblivious to the controversy swirling around
Winspear at the time, Mr. James concluded, "Let's get on with it!". As the
market anxiously awaits the bulk sample results, that is likely a sentiment
shared by the company and its investors alike.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com |
