From Stockwatch:
Author: WillP -- Date:1999-09-17 17:01:25
Subject: Street Wire
Friday 17 Sept 99 Street Wire
TUZO SAMPLE YIELDS DIAMONDS AND
COMPLICATIONS
by Will Purcell
Mountain Province Mining Inc. has received the diamond recovery
results from a minibulk sample taken from the Tuzo kimberlite pipe
at the company's Kennady Lake diamond project in the Northwest
Territories. Mountain Province holds a 90-per-cent interest in the
project, with Camphor Ventures Inc. holding the remaining
10-per-cent stake. Monopros Ltd. is the operator of the property,
and can earn a 60-per-cent interest in the AK and CJ claim blocks,
which host the Kennady Lake project.
A total of 11 reverse circulation holes were drilled into the Tuzo
kimberlite, to depths ranging from 65 to about 300 metres. A total of
523 tonnes of kimberlite were recovered, and processed at the
Monopros dense media separation facility in Grande Prairie, Alta.
The concentrate from this process was shipped to Johannesburg,
South Africa, where the diamonds were recovered. The sample was
found to contain 533 carats, for an overall grade of 1.02 carats per
tonne. The largest diamond recovered weighed 3.38 carats, and a
total of four weighed over two carats. In all, 20 diamonds were
found with a weight greater than one carat, and 72 diamonds
weighed more than one-half carat. Of all of the diamonds recovered,
498 weighed more than 0.2 carats.
The results stand in stark contrast to the much smaller minibulk
sample taken in early 1998. A 48-tonne sample yielded 108 carats,
for a grade of 2.24 carats per tonne. The diamonds from this sample
were recovered with a one-millimetre square screen mesh size, while
the current sample used a 1.5-millimetre mesh. The two largest
diamonds were 2.34 carats and 1.85 carats respectively, and a total
of 10 diamonds weighed 0.8 carats or more. Monopros
subsequently reported an estimated grade of 2.2 carats per tonne for
Tuzo, based on a 1.5-millimetre cutoff, and stated that the value of
the diamonds was estimated to be $68 (U.S.) per carat, with a
possible range between $51 (U.S.) and $108 (U.S.) per carat.
The current sample, over 10 times larger than the previous one,
achieved a grade less than one-half of the earlier results. A more
disturbing fact is that much of the reduction appears to be at larger
diamond sizes. Diamonds larger than 0.8 carats were present in the
initial minibulk sample at a rate of 208 per 1,000 tonnes. The
number of diamonds in this size class was not reported for the
current sample, however it can be estimated by logarithmic
interpolation. It appears likely that there were just over 30 diamonds
larger than 0.8 carats, which is equivalent to a rate of 60 per 1,000
tonnes, and this frequency would be less than 30 per cent of the rate
for the initial sample.
There were apparently two diamonds larger than 1.75 carats in the
1998 sample, which would suggest that 42 would be expected in
1,000 tonnes of kimberlite. The current sample contained diamonds
larger than two carats at the rate of eight per 1,000 tonnes, and it
appears likely that the rate for diamonds larger than 1.75 carats
would be approximately 10 per 1,000 tonnes, or less than 25 per
cent of the earlier frequency. This increasing lack of diamonds at
larger sizes should have a negative impact on the value of the Tuzo
diamonds. Larger diamonds carry the bulk of the value contained in
any diamondiferous kimberlite, so it appears probable that a
reduction in the estimated value for Tuzo diamonds will result.
Mountain Province president, Jan Vandersande, acknowledged this
was likely, but stated he believed any decline in the diamond value
would be fairly modest. He said, "I don't have a real feel for it, it
might come down to $60 (U.S.) per carat." He quickly added that
he believed this reduction would be offset by an increase in the value
of the Hearne diamonds.
It certainly was not all bad news at Tuzo. Early estimates had
suggested the pipe contained a total of nine million tonnes of
kimberlite, but drilling this past winter indicated that the body was
significantly larger than expected. Current estimates suggest that
Tuzo may contain 15 million tonnes to a depth of 360 metres. It
appears that the Tuzo diamonds are not evenly distributed through
the kimberlite, and variations exist both horizontally and vertically.
Individual drill hole grades varied between 0.34 and 3.07 carats per
tonne, with the western half of the pipe containing the lower-grade
values. The vertical variation is apparently due to varying amounts of
granite inclusions within the kimberlite. The top 100 metres have
fewer inclusions, and a higher grade as a result. Individual drill hole
results ranged from 0.64 to 3.07 carats per tonne throughout this
zone. A higher grade zone exists below 220 metres as well, with
grades below this level ranging from 0.84 to 1.72 carats per tonne.
Between these two layers, granite inclusions are most frequent, and
the individual grades range from 0.34 to 1.12 carats per tonne.
Six of the eleven holes were drilled into the lower grade western half
of the pipe, so the reported grade should be somewhat lower than
the actual value. The absence of a detailed breakdown in the
individual drill holes makes grade estimation for the different zones
little more than pure speculation, but it appears clear that the eastern
half of the pipe probably has a grade of about two carats per tonne,
with the western half likely to be 0.75 carats per tonne, or somewhat
lower. The vertical variations appear not to be as extreme, but are
significant nonetheless. The topmost layer may have an overall grade
of two carats per tonne, and the bottom portion probably has an
effective grade in excess of 1.5 carats per tonne. The mid portion of
Tuzo does appear to be a region with significantly lower grade, at
somewhat less than 0.75 carats of diamonds per tonne.
As a result of the cumulative effect of these variations, it appears that
the upper portion of the eastern half of the pipe may have a grade
near three carats per tonne, and this zone may be as large as three
million tonnes. Much of the kimberlite will have a grade well below
one carat per tonne, however. This low-grade area should cover
most of the western portion of the pipe, and parts of the central
vertical zone across the eastern region, and could account for as
much as seven million tonnes. The remaining five million tonnes,
below 100 metres in the eastern zone, may have a grade near two
carats per tonne. As a result, the eastern portion of Tuzo may well
have a grade close to the earlier estimate of 2.2 carats per tonne.
Furthermore, this zone may contain a total of eight million tonnes of
kimberlite, which was close to the size initially estimated for the pipe
during 1998.
Mr. Vandersande said he was pleased with the increase in grade
below 220 metres, and stated that the increase was also present on
the western portion of the pipe. He expected the overall grade of the
pipe as a whole "would be around 1.5 carats per tonne, maybe a bit
less."
The relative lack of larger diamonds can not be entirely explained by
the presence of the lower-grade zones, however. It appears that the
higher-grade eastern half will have a somewhat lower proportion of
larger diamonds than had previously been hoped. As a result, the
overall value per carat may be reduced to a value closer to that
previously reported for the AK-5034 pipe, perhaps near $55 (U.S.)
per carat.
The results make the issue of a future mine at Kennady Lake a more
complex issue. The 1998 small minibulk sample program, and
delineation drilling had identified a total resource of 32 million tonnes
of kimberlite, containing an estimated 62 million carats, perhaps
worth a cumulative $3.4-billion (U.S.). Based on the data available,
the joint venture proceeded to acquire larger samples from the three
largest pipes, with the stated intention of acquiring 1,000 carat
parcels from each to better determine the grade and value of the
deposits.
The first results of this program were released for the AK-5034 pipe
in July. A parcel of 980 diamonds was recovered, and the resulting
sample grade was a reported 1.71 carats per tonne. The parcel
included three large diamonds, with two just under five carats, and
the largest, a reported 10.0 carat stone. For the most part, the
results were as expected, and confirmed the body to be a fairly
large, high grade deposit. Mr. Vandersande said that he felt the
revised value for the diamonds would change little over the
previously reported $51 (U.S.) per tonne value.
The results from Hearne were available in mid-August, and were
somewhat disappointing. The sample contained only 846 carats, and
the grade was 1.80 carats per tonne, which represented a
23-per-cent reduction over the earlier estimate. The reduction is
apparently due to a steeply dipping low grade zone located in the
centre of the pipe, and the central location of this zone would almost
certainly require that it be mined in an open pit operation. The
Hearne diamonds recovered in 1998 were estimated to have a value
of near $44 (U.S.) per carat, but it appears that an increase in this
value is likely, based on the latest parcel. Mr. Vandersande said that
there were quite a number of larger quality diamonds in the Hearne
parcel, and he was "definitely hoping for the value of the Hearne
diamonds to go up." He stated that "a value of $55 (U.S.) to $60
(U.S.) per carat wouldn't surprise me."
As a result of the work over the past several months, the kimberlite
tonnage for the three main pipes has grown to 39 million tonnes, but
diamond resource appears to have decreased to a minor degree, to
almost 60 million carats. Should all of the pipes have an average
value of $56 (U.S.) per tonne, the contained value of the diamonds
would be unchanged, at $3.4-billion (U.S.). The most significant
implication of the changes occurs in the overall rock value, which
would now be $87 (U.S.) per tonne, compared to the 1998 estimate
of $105 (U.S.) per tonne. Tuzo in particular, might have its average
rock value fall to one half of the previous $150 (U.S.) per tonne
estimate.
While a possible 15-per-cent decline in rock value detracts from the
project's profitability, Monopros appears to remain a believer, as the
De Beers subsidiary just completed a buyout of the 3-per-cent gross
overriding royalty which Mountain Province had procured from
Inukshuk Capital. The deadline for the purchase was November of
this year, and Monopros acquired a 51-per-cent share of the royalty
for $2.55-million. The net effect of this transaction would be to
cancel the royalty should the project advance to production.
Mr. Vandersande said that he felt a mine could be built by
Monopros for $600-million. He said one possibility was that three or
four dykes would be built between islands, and a portion of the lake
could then be drained. He added that the water was only four or five
metres deep, and the lake was not on a major waterway.
Presumably, a number of open pits would be developed to extract
the ore from the pipes. He added that a modular plant would also
allow for a lower capital expenditure. Mr. Vandersande said that the
operating costs for such an operation should be more in line with
those at Ekati, rather than the projections contained in the Diavik
feasibility report. The operating costs at Ekati are apparently in the
neighbourhood of $30 (U.S.) per tonne. A mine smaller than the
9,000-tonne-per-day Ekati operation would experience somewhat
higher operating costs, and $45 (U.S.) per tonne might be a realistic
figure.
Meanwhile, planning continues on other fronts. Mr. Vandersande
said that Monopros might choose to sample the Wallace kimberlite,
but he noted that the microdiamond recovery results were similar to
Hearne and Tuzo, and he felt that Wallace would have a similar
grade. He said that it was more likely that further delineation drilling
would be done at Wallace. It appears that the area around the
Faraday body will be explored this fall and winter. Mr. Vandersande
said that a fall drill program was possible this fall, but definite for this
winter. The area, 12 kilometres to the northeast of the main pipe
cluster, appears prospective to host additional kimberlites.
Results for the smaller minibulk sample taken from the low grade
Tesla pipe are expected to be released in a few weeks. Mr.
Vandersande said that he did not expect a significant improvement in
the grade of the pipe, but he believed the value would remain high.
"If anything, the value of the diamonds will go up", he said. The
release of the modeled value of the diamonds recovered from the
current sampling program is expected "sometime in October", Mr.
Vandersande said.
Mountain Province has recently acquired an interesting diamond play
on Baffin Island. The company will earn a 50-per-cent stake in
Baffin Island claims held by Opus Minerals Inc. by spending a total
of $300,000 on exploration. Preliminary work has identified four
separate kimberlite boulder trains terminating in lakes, as well as
kimberlite outcroppings around a lake, and a separate land based
kimberlite outcrop. This may represent a new cluster of kimberlite
bodies in a relatively unexplored area. Till samples have been
collected in the area, and a number of small kimberlite samples have
been sent for possible diamond recovery by caustic fusion. Mr.
Vandersande said that results should be available by the end of the
year.
The 1999 exploration programs have provided some good news and
a few disappointments along the way, but the work has provided a
far clearer picture of the Kennady Lake pipes, and what form a
future mine would take. The three dimensional modeling of both
grade and diamond value for the three main kimberlite bodies is well
under way, and the release of these values will be anxiously awaited
by the market, due to the powerful effect the values could have on
the profitability and viability of the project. Mountain Province
shares, once traded for over $9 during the summer of 1995, but had
fallen to $1.30 in October of 1998. The stock traded in a narrow
range around $2.40 for much of the spring, but began a late June
rally and reached a yearly high of $4.20 in mid-July. Mountain
Province shares subsequently have returned to the $2.40 range. The
stock traded down Wednesday, on the disappointing news from
Tuzo. Mountain Province shares reached an intraday low of $2.12,
but recovered somewhat to close at $2.30, down 13 cents on the
day.
(c) Copyright 1999 Canjex Publishing Ltd. |
