Winspear settles down, awaits next sample
Winspear Resources Ltd WSP
Shares issued 39,238,388 Jul 14 close $4.15
Wed 14 Jul 99 Street Wire
WINSPEAR EXCEEDS ITS TONNAGE GOALS
by Will Purcell
Last week, Winspear Resources Ltd. released the Snap Lake tonnage estimates
calculated by MRDI Canada, a division of H. A. Simons Ltd. The company had
undertaken a major drill program during the winter and spring, with the
stated objective of identifying "...between 3.5 and 5 million tonnes of
kimberlite for a feasibility study and to outline an additional 3-5 million
tonnes." Based on the latest results, it appears that this objective has
been exceeded to a significant degree.
Based on drilling to date, MRDI estimates that just over 23 million tonnes
of kimberlite are contained in an area comprising the northwest peninsula
of Snap Lake, the northwestern reaches of the lake itself, and western
sections of the north shore. Of particular encouragement is the fact that
most of the tonnage is contained in thicker sections of the dyke. MRDI
estimates that 18 million tonnes of kimberlite are contained in sections of
the dyke having a thickness exceeding two metres. The average kimberlite
thickness of these thicker portions of the dyke is just under three metres.
The MRDI study paid particular attention to the area which was drilled in
finer detail. This contiguous area includes the northwest peninsula, and
the region under the lake itself to the east and northeast of the
peninsula. The company estimates that almost 10 million tonnes of ore are
present, with just under eight million tonnes of kimberlite present in
areas with a dyke thickness exceeding two metres. The estimates in this
region have been defined by closer spaced drilling, and the accuracy of the
calculations are believed by Winspear to be sufficient for feasibility
study purposes.
All of the tonnage estimates are based on kimberlite intersections and do
not incorporate grade estimates. MRDI is currently preparing an estimate of
the kimberlite grade for the reported tonnage figures. The purpose of this
exercise is to establish a formal resource estimate to international
standards. A diamond distribution curve will be constructed based on
macrodiamond recovery from the two bulk sample pits, and microdiamond
recovery from the close spaced drill program which was completed in the
immediate area from which the bulk samples were taken.
In theory, diamond distribution closely follows a mathematical curve from
the smallest to the very largest stones, and if the curve is accurate, the
expected rate of occurrence for larger diamonds may be projected from the
known frequency of the smaller stones. The MRDI study will attempt to
accomplish this by using the frequency of micro and smaller macrodiamonds
found in the drill cores taken this past year throughout the northwest
dyke. Such estimates can be erroneous if the original curve is incorrect,
or if the distribution of diamonds in another region of the dyke is
significantly different than the computed curve, as might be expected in a
multiple phase kimberlite deposit. As well, the very nature of the dyke
will pose a special problem for MRDI. The average drill intersection is
less than three metres, and the total sample weight recovered from an
individual hole is therefore small. To achieve statistically relevant
results, MRDI may have to combine a number of samples taken in a general
area. An additional complication will arise if the diamond grade and
distribution from the second bulk sample differs significantly from the
first sample released in late June. Clearly, the computation of grade for
the dyke as a whole is not a trivial exercise, and results should not be
expected until late summer, or this fall.
An additional 19 drill holes were completed at Snap Lake since the end of
April. Of these, 12 were exploration holes on the northwest dyke. Most of
these holes were completed on the north shore of Snap Lake, extending the
strike length on the north shore to 1,000 metres, and the down dip extent
to 1,200 metres. As a result, a significant portion of the stated global
resource resides under the north shore, with perhaps as much as five
million tonnes outlined to date. Furthermore, the dyke remains open to the
north and east in the north shore region. In total, 71 exploration holes
were drilled in the northwest dyke during the winter and spring program. As
well, seven holes were completed in the area down dip of the southeast dyke
system, discovered during the spring of 1998. Further drilling is planned
in this area to assess the economic potential of the southeast dyke system.
Steve Swatton, a Winspear geologist, described the northwest dyke as having
a dip to the east, but he said it also appears to be gently warped about a
fault running roughly parallel to the north shore, with a resulting
secondary dip in the dyke occurring to the north. As a result, the
shallowest intersection found on the north shore was 50 metres, making an
easy surface bulk sample impossible. Mr. Swatton acknowledged the dyke
could possibly extend to, or onto the Diamondex property to the northeast,
but he indicated the depth at that point would be approximately 1,000
metres. He also indicated that two drill holes failed to intersect
kimberlite. These holes were drilled in an area approximately 3.5
kilometres down dip, over the most northeastern portion of the lake. Mr.
Swatton said that he was uncertain if the holes were drilled sufficiently
deep enough to intersect the dyke. It does appear probable that the holes
would be too shallow to intersect the dyke in this region. If the dyke
continued to dip uniformly at 12 degrees, it would lie nearly 750 metres
below ground level.
For the most part, Winspear appears to be concentrating on the portions of
the dyke that lie within 300 metres of the surface. For the moment, that
appears to be a rational approach. If the dyke system ultimately did extend
to great depth, well to the north and east of the lake, it could
potentially be decades before the deep extremities of the kimberlite would
be mined, even at mining rates significantly higher than those currently
envisioned.
The drill program has also clearly identified a narrowing of the dyke over
the western and southern regions, where the dyke narrows to one metre, or
less. It appears unlikely that the regions with a thickness of one metre or
less could be economically mined, based on current valuations. As well, a
thickening in the dyke was noted in an area running roughly parallel to the
north shore of the lake.
Mr. Swatton said that Winspear is actively considering taking a large bulk
sample in the down dip area. This sample could be as large as 40,000
tonnes, and might provide 70,000 carats of diamonds. He suggested such a
sample might cost up to $20-million, but the cost would be partially offset
by the significant resource likely to be recovered. Mr. Swatton estimated
the diamonds recovered might have a net value of $8-million (U.S.), an
amount greater than half the cost of the entire bulk sample. He was unsure
of any plans for the ultimate disposition of the diamonds to be recovered,
or of the ones recovered from the current bulk sample program. Mr. Swatton
said that the original diamonds recovered from the minibulk sample would be
kept indefinitely, however there was no such requirement for the subsequent
samples. Indeed, other successful juniors have found the sale of diamonds
recovered from bulk sample programs to be a ready source of income.
SouthernEra Resources Ltd., in particular, has funded further work in this
fashion.
Mr. Swatton suggested a likely region for the large bulk sample was under
the lake, to the east of the northwest peninsula. He said that a ramp, or
decline, would be driven, probably terminating in a diverging "Y"
intersection. Samples would be taken to the north, possibly under the north
shore, and to the south, under the lake. Such a route could be constructed
in such a fashion that kimberlite would be encountered for most of the
length of the required excavation. With an assumed 2.5 metre average
thickness, and a six metre width, the excavation would exceed 1,000 metres
in length in order to remove 40,000 tonnes of kimberlite. While plans for
this sample are only in the formative stages, such a sample would clearly
advance the project, answering questions about variation in grade and value
across a significant portion of the dyke.
Industry analysts and investors have long speculated over possible rates of
mining in excess of the proposed 1,000 tonnes per day contained original
MRDI scoping study plan. Late last winter, Deutsche Bank's George Albino
suggested a 3,000 tonne per day operation was more likely. Since then, some
have suggested rates even higher. Winspear itself appears more cautious,
originally clinging to the lower rate, then suggesting that 1,500 tonnes
per day was feasible. More recently, it appears that the company has
acknowledged that a rate of 2,000 or 2,500 tonnes per day might be possible
based on the latest results.
The capital cost of the original MRDI plan was just over $100-million, and
an expanded operation would increase the cash outlay required. Mr. Swatton
said that Winspear hopes to raise at least a significant portion of the
required funds by debt financing. He acknowledged that a proposed
production target of 2001 was aggressive and perhaps optimistic, but he
stated that much of the work required to ultimately obtain the required
permits and approvals was under way.
One snag on the route to production could be the current dispute between
Winspear and its joint venture partner, Aber Resources Ltd., concerning
Aber's participation in the recent exploration program. At the technical
level however, the partners apparently continue to maintain an excellent
working relationship. If the dispute is resolved in a timely fashion, it
would appear likely that no long term harm will have been done to the
working relationship between the partners.
Several brokerage analysts have updated their outlooks for Winspear
recently. Canaccord Capital's David James continues to recommend Winspear
as a speculative buy, setting a twelve month target price range between $5
and $10. Yorkton's Greg Barnes noted that Winspear had exceeded their
tonnage goal, and suggests a target of $7. Yorkton's Art Ettlinger
maintains his $7 target price, and recommends Winspear "for the investor
seeking exposure to a well managed, and successful diamond exploration
company." Investment writer Sudhir Khanna also appeared to like the news.
He notes that the results "continue to remove risk out of holding
Winspear", and states there is "a good probability of positive surprises".
While the most recent results were largely expected, the market appeared to
appreciate the MRDI tonnage estimates. Winspear, which had closed July 2 at
$4, reached an intraday high of $4.65 on July 6, after the news. The stock
has subsequently retreated to the low $4 range, closing Tuesday at $4.11.
Winspear shareholders experienced a wild ride the past few months, with the
stock climbing from $3 to a high of $5.30 by the end of May, then
subsequently falling to $3.20 after the release of the first bulk sample
results. It has since found the $4 mark to its liking, as the market awaits
the release of the second bulk sample results, due late this month.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch. |
