Winspear results will require much analysis
Winspear Resources Ltd WSP
Shares issued 39,238,388 Jul 15 close $4.20
Mon 19 Jul 99 Street Wire
FROM SKEWED TO CONSISTENT
by Will Purcell
In a move that caught the market by surprise, Winspear Resources Ltd. released the results of the second 3,000-tonne bulk sample taken from the kimberlite dyke at Snap Lake. The results were expected at the end of July, however, investors awoke last Friday to find that trading in the shares of Winspear had been halted, pending the announcement. The kimberlite was mined late last winter, and trucked to the Tahera processing plant at the Lupin mine site. The security, transport, and arrangements for the valuation of the diamonds was the responsibility of WWW International Diamond Consultants Ltd. of London England. A total of 2,981.8 tonnes of kimberlite were recovered and processed. From this sample, a total of 5,165.8 carats of diamonds were recovered, which suggested a grade of 1.73 carats per tonne. The diamonds were valued in Antwerp by seven independent diamentaires, and were reportedly worth an average $111.98 (U.S.) per carat. This implied an overall rock value of $193.95 (U.S.) per tonne. Of the diamonds recovered, three were classified as special stones, having a weight exceeding 10.8 carats, and a total of 103 diamonds weighing in excess of three carats were recovered. The results represent an improvement over the first 3,000-tonne bulk sample. In mid-June, Winspear announced that a 3,003.9-tonne sample had contained 5,542.3 carats, for an average grade of 1.845 carats per tonne. These diamonds were valued at $98.42 (U.S.) per carat, or $181.58 (U.S.) per tonne. Six of the diamonds from the first sample were classified as special stones, and a total of 88 diamonds exceeded three carats in weight. Winspear geologist and spokesman, Steve Swatton, described the results as excellent. “We're ecstatic”, he said, adding, “The results give us the continuity we were looking for. This couldn't have been a better result.” The company appears to have good reason to be content with the bulk sample results. The $12 per tonne increase in value appears to have occurred without the presence of large special stones, suggesting the overall quality of the diamonds recovered has improved. Mr. Swatton once again emphasized the importance of the stones in the two to four carat range, stating that there is a clear shortage of raw diamonds in this size group. This indeed appears to be the case. The Rapaport Diamond Report recently stated, “For a number of reasons the supply of these stones is severely limited and prices have significantly increased because there are not enough of them to go around.”
A grand total of 6,185.4 tonnes of kimberlite have now been extracted from four pits on the northwest peninsula of Snap Lake. From this ore, a total of 10,935.9 carats have been recovered, representing one of the largest bulk sample recoveries to date in the Northwest Territories. These diamonds have been cumulatively valued at nearly $1.2-million (U.S.), or $193 (U.S.) per tonne. A total of 198 diamonds exceeding three carats weight have been recovered, and 10 are classified as special stones. The two largest diamonds recovered weigh 14.3, and 14.1 carats. Controversy has swirled around Winspear for much of the past year. The original minibulk sample taken in 1998 had returned a significantly higher rock value, but it was subsequently suggested that over 75 per cent of that value was contained in only three large gems. In January, Winspear addressed the mounting concerns by revealing more information about the value of the minibulk sample. The company confirmed that 75 per cent of the value resulted from the three large gems, and indicated that the remaining diamonds provided a rock value of only $95 (U.S.) per tonne. The recent bulk sample has now established a base value more than two times that figure. Moreover the results of the second sample were quite similar to the first. Mr. Swatton said that this consistency of the results across both bulk samples was especially pleasing. He said that “we may not need the 40,000-tonne bulk sample”. He suggested a further, underground bulk sample was still planned, but the size would likely be smaller than 40,000 tonnes, which was the maximum size permitted by regulations. The similarity between the two bulk samples, taken from sites 260 metres apart, suggests the dyke may well display remarkable consistency throughout the structure. One or more large underground samples would undoubtedly have been required to confirm the value, had the results of the latest pit given a value much higher, or lower, than the earlier bulk sample.
Snap Lake now appears to contain a high percentage of gem quality diamonds. The two bulk samples contained diamonds larger than 1.15 millimetres, whereas the commonly accepted commercial cutoff is approximately 1.6 millimetres. The larger size would remove a significant number of very small diamonds, but almost none of the contained value. A commercial grade of approximately 1.3 to 1.4 carats per tonne appears more realistic, with the diamonds having a value of up to $150 (U.S.) per carat. The issue of skewed results masking an otherwise uneconomic deposit now appears to have been soundly laid to rest. Even in the very unlikely event that all 10 of the special stones were of high quality, worth $2,500 (U.S.) per carat, their total value would be only about $300,000 (U.S.), or about 25 per cent of the total parcel of diamonds.
In fact, the comparison of the Snap Lake deposit with other bulk samples raises the intriguing possibility that the latest valuation may be somewhat skewed toward a lower figure. The Diavik joint venture extracted a 2,585-tonne bulk sample from pipe A-154 south in 1996. This pipe is known as a high-grade deposit, but one which contains relatively few large diamonds. Curiously, the largest stone recovered weighted 14.7 carats, which is larger than any so far recovered from Snap Lake. The largest gem quality stone at A-154 was only six carats, which suggests the number of stones larger than 10.8 carats was very small. The largest gem recovered from the bulk sampling of Diavik pipe A-418 was eight carats, with no mention of any larger stones recovered. It appears likely that special sized stones are few and far between at Diavik, compared to Snap Lake, yet the largest stone recovered came from a Diavik pipe. Mountain Province Mining Inc. recently announced the results of a 573-tonne bulk sample taken from pipe AK-5034, which provided a grade of 1.71 carats per tonne. Prior minibulk samples with a total weight of 160 tonnes were also extracted from this pipe. Of all the diamonds recovered from these 733 tonnes of kimberlite, only seven exceeded three carats weight. The largest diamond recovered was 10.0 carats. The Snap Lake deposit has over three times the number of diamonds exceeding three carats, yet the largest diamond recovered from pipe 5034 approaches the size of the largest recovered by Winspear, in spite of a much smaller ore sample weight. Perhaps a better comparison can be made with the Tahera JD/OD-1 pipe. A 9,401 tonne sample was processed in 1997, which resulted in a reported grade of 1.18 carats per tonne. This sample produced a significant number of large stones. The sample contained 67 diamonds in excess of five carats, or just over seven per 1,000 tonnes. It is estimated that the sample contained 19 diamonds exceeding three carats, for every 1,000 tonnes processed. A total of 23 diamonds were found weighing in excess of 10 carats, it is likely that only about 19 of these would be special stones. If so, there would be two specials per 1,000 tonnes. The comparison with the Winspear results is interesting. The Snap Lake dyke contained a reported 32 diamonds larger than three carats for every 1,000 tonnes, and may have contained about 12 stones in excess of five carats per 1,000 tonnes. A total of 10 special diamonds were recovered, or just under two per 1,000 tonnes. Both the JD/OD-1 and Snap Lake deposits appear prolific producers of oversize diamonds, and would appear to exhibit somewhat similar distribution curves. The overall grade is 50 per cent higher at Snap Lake, and the numbers of diamonds exceeding three and five carats also appears to be roughly 50 per cent higher as well. A significant difference occurs with the largest stone sizes. The Snap Lake sample did not contain any diamonds larger than 15 carats, whereas the Tahera deposit contained 10 diamonds in excess of that weight, including three in excess of 25 carats. The largest diamond was reportedly just over 40 carats. With a bulk sample, even one of several thousand tonnes, the numbers of special stones are not statistically relevant. The rarity of these diamonds is such that the rate of occurrence can not be predicted by the rate of appearance in the bulk sample, as there may be none at all, or several. The presence of a number of large specials, from 20 to 30 carats in size, was widely suggested by investors and some analysts. The absence of any such stones is likely a case of Winspear simply being statistically unlucky. Had just one 30 carat high quality stone appeared, carrying a value of $6,000 (U.S.) per carat, the value of the combined 6,000-tonne bulk sample would have increased by $30 (U.S.) per tonne. This may, or may not, have been a realistic rate of occurrence, and would have continued the debate about skewed results.
The behind-the-scenes work which will now commence, should be of far more importance in assessing the presence of large special stones, and the value which they might add to the kimberlite. The company will now employ consultants to evaluate the detailed results, construct an accurate diamond distribution curve, and attempt to translate the numbers of micro and small macrodiamonds found in the drill cores into valid grade and value estimates for the body as a whole.
Mr. Swatton stated that a busy year lay ahead for Winspear. In addition to the detailed work required to analyze the bulk sample and caustic fusion results, he said that planning must now begin almost immediately for the next winter season. Mr. Swatton dismissed the persistent rumour that Winspear had purchased a small processing plant as untrue, however he stated that such a purchase was now a distinct possibility. He said, in addition to a possible plant, the company was looking at what equipment and supplies would be required for the planned work. “I'll tell you one thing, we have to get going fairly soon,” he said.
Mr. Swatton summed up the hectic Friday as a pretty happy day for Winspear. How the market will respond to the news by Monday's close is another matter. Mr. Swatton suggested that “Monday is likely to be a trader's day.” He said that although some day traders might be unhappy with the results, the concerns of many larger investors had centred around the issues of grade and value consistency, and these concerns had now been satisfactorily addressed.
The next few days will doubtless be interesting for Winspear investors. The company's shares experienced a tumultuous ride the day after the June release of the first 3,000-tonne bulk sample. The stock, which had closed at $4.05 prior to the news, dropped in the first few hours of trading to $3.20, but regained most of the lost ground by the end of the day. In the days following, Winspear shares moved to levels well above $4 as the market slowly digested the news. Whether history will repeat itself, or take a new direction, is anyone's guess.
© Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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