SouthernEra in rewarding but risky places
SouthernEra Resources Limited SUF
Shares issued 25,980,645 Jun 9 close $4.75
Thu 10 Jun 99 Street Wire
LOOKING FOR DIAMONDS IN FARAWAY PLACES
by Will Purcell
SouthernEra Resources Ltd. has been actively involved in the search for
diamonds in Canada's north since 1992, when Christopher Jennings joined the
board of directors and became president. Prior to that time, the company
had been involved in a number of metal prospects, primarily in the southern
hemisphere. Mr. Jennings changed the company's focus to diamonds, but
quickly returned to lands below the equator in search of the elusive
stones. The company has since achieved success in South Africa, primarily
at Klipspringer and through the Marsfontein joint venture with De Beers. As
a result, SouthernEra now enjoys a healthy cash flow from its Marsfontein
operation. Meanwhile, SouthernEra continues to acquire and explore new
diamond properties in the southern hemisphere.
On Monday, SouthernEra Resources Ltd. released preliminary results of
exploratory drilling of the Camafuca kimberlite pipe in Angola. The
property was acquired in early 1997, when the Angolan government approved
the company being granted a 51 per cent interest in what was described as
the world's largest undeveloped diamondiferous kimberlite pipe. The pipe is
situated in northeastern Angola, in the Calonda area of the province of
Luanda Norte. The region has an excellent climate throughout the year, and
the local infrastructure is good as well. The pipe has road access, and a
local airstrip is nearby. Water and fuel supplies are easily obtained, and
the potential for access to hydroelectric power exists.
The pipe is estimated to be 3,300 metres long and an average 500 metres
wide. A drill program of over 250 core holes was previously completed, and
a number of large diameter holes were drilled to bulk sample the pipe to a
depth of 120 metres. The pipe is believed to contain at least four separate
kimberlite phases, each with a different diamond content. This earlier work
suggested the body had a general grade of 0.15 carats per tonne, with
individual drill hole results returning values up to approximately 0.75
carats per tonne. An estimated 1,600 carats were recovered from the bulk
samples, and they carry an approximate value of $100 (U.S.) at current
prices. Four higher grade areas within the pipe have been identified
through bulk sampling. These zones contain an estimated nine million
carats, grading 0.3 carats per tonne. Roughly half of the diamonds are
contained in two of these areas, with a grade of 0.43 carats per tonne.
Stone size data exists for a quarter of the diamonds recovered. This
information reveals that the average stone size was 0.14 carats. Roughly
one-quarter of the stones were larger than 0.5 carats, and one-sixth of the
diamonds were larger than one carat. The largest diamond in the parcel
weighed over eight carats.
The area also has seen alluvial diamond mining in the past. Gem diamonds up
to 195 carats have been recovered from these operations in prior years. The
alluvial gravel deposits have graded approximately 0.33 carats per ton, and
the diamonds would have had a value of approximately $450 (U.S.) per carat
today. It is believed that substantial reserves of these gravels remain in
the area.
Since SouthernEra acquired the property, it has completed a 23 hole
drilling program to study the upper portion of the kimberlite. This program
was designed to identify higher grade zones within the body. A total of
eight tonnes of kimberlite were recovered, which were submitted for diamond
recovery. The results suggested that the epiclastic kimberlite sandstone
and kimberlite breccia phases had low overall grades. Approximately three
tonnes of this material was processed, and 0.17 carats were recovered, for
a grade of just over 0.055 carats per tonne.
The epiclastic kimberlite grit samples graded 0.46 carats per tonne, from
almost five tonnes of rock. This represents a significant increase in grade
for this phase, as prior results suggested a grade of only 0.13 carats per
tonne for the epiclastic grit. The largest stone recovered from the current
program weighed 0.39 carats.
A bulk sample program is in progress, and approximately 25,000 tonnes of
material is available for processing. Diamond recovery from the lower grade
breccia material was used during the commissioning phase of the plant, but
the processing of the higher grade grit should begin later this month. The
bulk sample program will recover diamonds from approximately 15,000 tonnes
of the available rock to better define grade and diamond value throughout
the pipe.
Angola has been ravaged by civil war since it gained independence from
Portugal in 1975. There have been a number of temporary cease fires through
the years, but the war goes on. The country has produced over 60 million
carats valued at over $150 (U.S.) per carat, making Angola one of the
richest diamond producing countries in the world. The hostilities have
caused many explorers to shun the area in recent times. Late last fall,
rebel forces mounted an attack on the producing Yetwene mine, operated by
DiamondWorks in northeast Angola. The Camafuca area did not experience any
serious problems during 1998. Nevertheless, SouthernEra has increased
security measures at the site, and the Angolan government has provided
considerable security forces in the region.
While the prospects for the Camafuca kimberlite appear promising, the
political climate of the region appears to make development a risky venture
indeed. SouthernEra does appear willing to assume the risk, however. The
company recently completed the acquisition by making the required
$6.5-million (U.S.) payment to the Sphere Trading Group of South Africa. As
well, SouthernEra spent $3-million on exploration in 1997, and a further
$6.7-million last year. The preliminary 1999 budget is projected at
$4-million.
As Camafuca proceeds through prefeasibility evaluation, the company has
also cast an eye to the other side of the Atlantic. This year, SouthernEra
reached a deal with Canabrava Diamond Corp. to explore the Canabrava
prospect in Brazil. Under the terms of the agreement, SouthernEra will earn
a 50 per cent interest by spending a total of $20-million (U.S.) over the
next seven years, with a firm commitment to spend $1.5-million of that
amount over the first two years. The company could reduce its commitment to
$15-million, by subscribing to a $1-million (U.S.) private placement in
Canabrava. Should SouthernEra ultimately fund the project to production,
its interest would be increased to 70 per cent.
The property was originally acquired by Southwestern Gold Corp. in 1987,
before the major land acquisition programs in the region earlier this
decade. Hillsborough Resources committed to spend the first $500,000 (U.S.)
in exploration, to earn a 50 per cent interest. In the fall of 1993,
Hillsborough transferred its interest to Vector Industries International
Ltd. Hillsborough owned a majority interest in Vector, and the move was
made to consolidate the diamond interests into one entity.
In 1994, the consolidation continued. Southwestern, Hillsborough, and
Vector agreed to merge their respective holdings in the Canabrava property.
As a result of this deal, Vector Diamond Corp. now controlled 100 per cent
of the property. Late that year, Vector merged with Signa Technologies to
form Canabrava Diamond Corp.
Canabrava conducted preliminary exploration, but soon struck a partnership
with a major. Teck Corp. acquired an option whereby it could acquire a 60
per cent share of the project in return for spending $10-million (U.S.)
over the next five years, and acquiring 750,000 shares of Canabrava at $3
per share. The interest of Teck may have been triggered by stream sediment
samples which showed the presence of platinum and palladium. Whatever the
motivation, exploration of the property now proceeded at a fast pace.
Within weeks, it was announced that nearly 300 macrodiamonds had been
recovered from a stream draining an area of kimberlite tuffaceous rocks.
Drilling of priority targets commenced in 1996 on about 40 of the 1,200
possible targets which had been identified on the large property. In the
early summer of 1996 it was announced that two diamondiferous pipes had
been discovered. Pipes KX-277 and RX-181 were shown to contain
microdiamonds. Approximately 500 kilograms of multiphase material from
KX-277 contained 167 microdiamonds, while 400 kilograms of material from
RX-181 contained more than 200 micros. The results were encouraging, but
the joint venture soon recognized there were problems with the recovery
plant. Samples were subsequently sent to Lakefield Research for confirming
caustic dissolution analysis.
Another kimberlite was found to be diamondiferous in early 1997. An 80
kilogram sample from the X-270 target was found to contain a 0.1 carat
diamond. This pipe was one of a cluster of targets in the immediate area,
and plans were announced to drill all of these targets. Targets X-273 and
X-254 were also shown to contain macrodiamonds.
In the fall of 1998, Teck announced it would no longer finance the project,
due to the downturn in the resource market. As Teck failed to complete the
required exploration, the property was once again 100 percent owned by
Canabrava. To the end of 1997, 207 targets were tested in a program that
conducted over 11,000 metres of drilling. As a result, 130 kimberlite or
lamproite pipes were identified and a number of these bodies were found to
contain micro and macrodiamonds, however none of the diamondiferous pipes
discovered to date were found to contain economic grades of diamonds.
In addition to primary sources, the Canabrava property contains a number of
potential alluvial diamond deposits. These deposits have produced a number
of pink, blue, and green fancy diamonds, in addition to high quality
colourless stones. SouthernEra has the right to devote 20 per cent of its
exploration commitment to developing these secondary deposits. Exploration
of the property is now under way. While Brazil presents much less risk than
Angola, the prospects for success may be lower as well. Brazil has produced
a large number of fine quality gems through the ages, but all have come
from secondary sources. An economic pipe has not been found in Brazil to
date.
SouthernEra shares rallied from below $5 last spring to reach a high of $9
in early January, but have experienced a steady decline since then,
dropping back to below the $5 mark recently. Through the past decade, the
company has provided its shareholders a wild ride. The stock traded as low
as one cent in the fall of 1991, prior to the arrival of Mr. Jennings, but
reaching the $10 mark in the summer of 1993 on the strength of the Canadian
diamond play. After the Tli Kwi Cho disaster, a SouthernEra share could be
had for less than $1 in early 1995. Another recovery began, as the positive
results began to pour in from South Africa. By the fall of 1997, a share
was trading for more than $20. The Asian crisis and the legal battles
surrounding the company's ownership of Marsfontein sent the share price
into another tailspin, reaching $4.50 in June of last year. With the
company's diverse interests in many lands, often unsafe lands, it appears
the ride may continue to be exciting.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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