Kensington finds a larger rock
From Will P stockwatch street wire
Kensington Resources Ltd KRT
Shares issued 41,537,631 Jul 23 close $1.28
Wed 24 Jul 2002 Street Wire
by Will Purcell
Kensington Resources has given its shareholders a bit of a treat, with word
that De Beers turned up the largest diamond yet found in any of the large
kimberlite pipes that dot the Fort a la Corne region of Saskatchewan. The
news was a bit of unexpected sparkle, as processing of the samples from the
2001 drill program had been completed, except for just a few small samples
from the upper part of two drill holes, which proved difficult to process.
One of those three small samples is now complete, and it contained a
pleasant surprise, in the shape of a 3.35-carat diamond.
The discovery sparked a flurry of interest in Kensington's well-distributed
stock, which has been struggling of late, dipping below the 90-cent mark in
late June after surging to a high of $2.36 in late March. Interest in
Kensington has been on the increase, as speculators anticipated that the
Fort a la Corne partners would soon reveal their exploration plans for this
year, along with the results of the De Beers technical report and updated
forecasts of diamond grade and value. The news of the larger diamond sent
Kensington's shares to an intraday high of $1.35 on Tuesday, and it closed
up nine cents, at $1.28.
The enthusiasm is certainly understandable, although it is hard to say just
how significant the find will actually be to De Beers, which relies on its
modelled values, rather than the actual raw recovery of diamonds to arrive
at its prognostications. As well, although the diamond is more than twice
the size of any other Fort a la Corne diamond, it is hardly a unique find
at this stage of exploration. Nevertheless, the stone does confirm that
larger diamonds are present in the pipe, although that seemed a statistical
certainty in any case, based on the earlier results.
The previous largest stone, which also came from kimberlite No. 141,
weighed 1.535 carats. That diamond was found in the 2000 drilling program,
which saw De Beers recover 21.06 carats from a 251.85-tonne theoretical
mass of kimberlite. Included in that parcel was a second diamond that
weighed more than one carat and a third that came fairly close. In all,
eight diamonds were recovered that weighed at least 0.5 carat, and those
stones probably weighed something close to 6.5 carats. That would indicate
that about 30 per cent of the weight of the parcel had been provided by
diamonds weighing at least 0.5 carat; an encouraging result.
By comparison, the recoveries last year seemed disappointing, at least at
first. De Beers went back for a significantly larger sample, excavating a
768.85-tonne theoretical mass of kimberlite. That material produced
diamonds weighing 38.715 carats, using a 1.5-millimetre cutoff, which was
somewhat larger than the 1.0-millimetre screen used in the 2000 program.
The indicated grade of the sample was just 0.05 carat per tonne, down from
the 0.083-carat-per-tonne result the year before.
A potentially bigger disappointment seemed to be the absence of any larger
diamonds in the 2001 program. Just seven of the stones were larger than 0.5
carat, and Kensington did not tout the presence of any larger diamonds,
which was certainly not a good sign. If none of the diamonds weighed over
one carat, the seven-stone parcel probably weighed less than five carats,
which was just 13 per cent of the weight of the entire parcel.
As a result, the appearance of the one large diamond is a welcome relief
for the Fort a la Corne project, although even the addition of a
three-carat gem to the parcel of larger stones would still leave it well
short of the standard set by the 2000 sample. With eight diamonds, perhaps
weighing a bit over eight carats, the collection of diamonds larger than
0.5 carat would account for a bit less than 20 per cent of the entire
parcel. Meanwhile, the total weight of the 2001 diamond haul has now grown
to 42.47 carats, thanks to the one large gem, along with two other, smaller
diamonds also found by De Beers. The additions have improved the indicated
grade of the 2001 mini-bulk sample to 0.055 carat per tonne, an increase of
nearly 10 per cent.
Whether the find will have any real impact on the forecasts of grade and
value prepared by De Beers is hard to say, as the company is believed to
place much more emphasis on its microdiamond and smaller macrodiamond
recoveries that it does on the presence of a single large diamond.
A telling example of just how little an impact that a large, valuable
diamond has on a De Beers forecast is the AK-5034 pipe, which was
discovered by Mountain Province Diamonds in 1995, at Kennady Lake. De Beers
has been taking samples of the pipe since the late 1990s, also by reverse
circulation drilling, and it has a much larger parcel of diamonds upon
which to base its forecasts than what it has acquired through the years
from the Fort a la Corne project. In 1999, De Beers extracted 980 diamonds
from 573 tonnes of kimberlite, which it modelled into a grade of 1.64
carats per tonne, and a value of $69.30 (U.S.) per carat.
In 2001, De Beers went back and recovered 914 carats of diamonds from 635
tonnes of kimberlite, including 104 stones that weighed at least 0.5 carat.
Included in the mix was one diamond that weighed 4.5 carats, along with
another that weighed 9.9 carats and was valued at $60,000 (U.S.), or about
$6,000 (U.S.) per carat. Furthermore, the recovery of the 10-carat stone
seemed to be no great fluke, as the 1999 sample had also produced a
10-carat diamond, two others that each weighed nearly five carats, and a
total of 113 stones that weighed at least 0.5 carat.
As a result, the recovery of the $60,000 (U.S.) gem seemed like great news
for Mountain Province shareholders, but the new data curiously prompted De
Beers to revise its predicted diamond value downward, to $65.50 (U.S.) per
carat. That modest figure would suggest that the entire 914-carat parcel
recovered in 2001 had a gross value of $59,867 (U.S.), which is actually
less than the value produced by the one large stone on its own.
The AK-5034 experience shows just how little the forecasts of De Beers
actually depend upon the recoveries of larger, quality diamonds, and it
also points out the difficulties encountered in trying to guess just what
the De Beers forecast will bring. Of course, it would take more than a
vivid imagination to suggest that the recovery of a three-carat diamond
could be bad news for Kensington and its partners, but because the fate of
kimberlite No. 141 seems to depend upon the modelled forecasts, speculators
will have to wait for the updated report to get the De Beers spin on the
discovery.
As well, the location of the latest find is interesting. Previous work had
indicated that it was the lower sections of the 141 kimberlite that
contained the best diamond grades. The best grade was reported to be 0.315
carat per tonne, over an 11.3-metre interval at a depth of close to 240
metres. The 2001 sample seemed to confirm that it was the lower portions of
the kimberlite that produced the best grades. The best interval last year
produced a grade of 0.21 carat per tonne over a 6.6-metre interval
beginning at a depth of about 225 metres, and a second hole produced a
grade of 0.18 carat per tonne over a 12-metre interval at a depth of about
175 metres. That certainly seemed encouraging, as even if only the lower
portion of the kimberlite was economic, there could still be several
hundreds of millions of tonnes of kimberlite in the zone.
In fact, De Beers seemed quite confident that such a high-grade zone
existed. Last fall, a senior geologist with the company, Adrian Berryman,
stated that grades approaching the 0.20-carat-per-tonne prediction had been
encountered in a portion of the kimberlite, and he attributed the lower
grades obtained by the sampling program to a far lower diamond grade in the
upper portions of the kimberlite. That opinion may well remain unchanged,
as one large diamond would not be enough to swamp the data already
acquired, but the presence of the stone in the uppermost, clay-altered
portion of the kimberlite is intriguing.
The three-carat stone moves the Fort a la Corne diamond play into exclusive
company, as few areas of Canada have produced such a large diamond. The
largest diamond recovered from the Buffalo Hills diamond hunt in Alberta
weighed just 1.31 carats, and none of the diamonds from Baffin Island or
Quebec have yet come close to three carats. De Beers certainly would have
recovered larger diamonds from its Victor pipe in Ontario, as it processed
more than 10,000 tonnes of kimberlite, but there have been few larger
diamonds found outside of the Slave region in Canada's North.
The Slave play certainly produced many larger diamonds at an early stage.
In addition to the two 10-carat stones found at Kennady Lake, multicarat
diamonds were also recovered in some of the early samples taken from the
Ekati and Diavik pipes. Perhaps the best small sample came from the Snap
Lake dike in 1998. Four diamonds weighing between five and 10.82 carats
from a sample of less than 200 tonnes, and the three largest stones,
weighing a total of 25 carats, were valued at just over $50,000 (U.S.).
All that would seem encouraging, but as well, there have been some large
diamonds recovered that appeared to be pure flukes. One such find was made
by Aber and Diavik at their A-11 North kimberlite. The pipe had produced
some reasonable diamond counts at an early stage, and the partners took a
mini-bulk sample by drilling. A total of 29 tonnes of kimberlite were
extracted, and the rock yielded 7.6 carats of diamonds, which suggested a
grade of 0.26 carat per tonne. Included in the haul was one 3.01-carat
diamond that was of gem quality.
Tahera Corporation had a similar find in the late 1990s, on its Jericho
project. Then known as Lytton Minerals, the company took an initial
mini-bulk test of its JD/OD-3 kimberlite, touting an encouraging grade of
0.7 carat per tonne, based on a diamond parcel weighing 7.34 carats
recovered from 10.5 tonnes of kimberlite. Nearly half of the weight came
from one diamond weighing 3.6 carats however, and a subsequent 36-tonne
sample produced only 10.41 carats, which indicated a grade of just 0.29
carat per tonne.
It remains to be seen whether the latest find from kimberlite No. 141 is
Kensington's just rewards, or just a fluke. The mammoth kimberlite is
certain to contain many diamonds much larger than the three-carat stone
just found, but the real question is just how many there are, and coming up
with an answer would seem to be one of the next tasks at hand. As well, it
will be interesting to see what will be found in the few remaining small
bathes of kimberlite.
In any case, the scope of further work at Fort a la Corne will depend upon
the contents of the report prepared by De Beers. It is the modelled grade
and value forecasts that will attract most of the attention, although it
will be the amount of work planned at Fort a la Corne that tells the tale,
as the partners must ultimately prove the predicted grade and values
through a bulk sampling program.
Many of those details are expected to be revealed in the coming weeks, but
investors seem to be taking a bit of a breather for now. The initial
euphoria that accompanied the news seemed to evaporate on Wednesday, as
Kensington's shares took a bit of a drop, dipping 12 cents in intraday
trading, to $1.16. |
