SGF:
Shore Gold Inc - Street Wire
Shore gets Star help from DiamondWorks partner
Shore Gold Inc SGF
Shares issued 23,450,703 Aug 21 2002 close $ 0.81
Thursday August 22 2002 Street Wire
by Will Purcell
Ken MacNeill's Shore Gold Inc. moved another step closer to its goal of taking a larger kimberlite sample from its Star pipe, thanks to an infusion of new cash from an unexpected source. The Saskatoon-based company has sold 2.5 million units to Magma Diamond Resources; a new company created by Israel-based Benny Steinmetz and a South African, Brian Menell. The share purchase will give Magma an interest of just less than 10 per cent in Shore Gold, and for now at least, the investment seems limited to the recently completed private placement. Nevertheless, Shore Gold hinted at something larger might be in the works when it stated, "Magma's expertise will greatly help in completing the proposed 25,000-tonne bulk sample over the next 12 months."
An expanded role for Magma could well be the case in the future, if both companies are willing. Magma recently came to terms with another Canadian-listed diamond hunter, the former Robert Friedland promotion, DiamondWorks Ltd., which had been attempting to mine diamonds in Angola in the late 1990s, at the cost of millions of dollars and the lives of several of its employees. The deal between DiamondWorks and Magma establishes a joint venture between the two companies to explore and develop DiamondWorks' Koidu kimberlite project in Sierra Leone. The Koidu project has been on the books of DiamondWorks for several years, but a bitter civil war in the West African country prevented any development in recent years, and the company's meager bankroll was a further stumbling block. Nevertheless, DiamondWorks had managed to spend nearly $8-million on preparing Koidu for a bulk sampling program, until a coup in 1997 forced a halt to the program. By then, the company had estimated that Koidu contained nearly five million carats of diamonds, with a value of just less than $1-billion (U.S.).
Conditions have recently stabilized in Sierra Leone, at least for now, and DiamondWorks would now seem to have a solution for its cash problem at Koidu as well, thanks to Magma. Under the terms of the deal, DiamondWorks will receive $1.2-million (U.S.) in cash, which must be spent exclusively on developing Koidu. As well, Magma must come up with a further $5-million in financing, on reasonable terms, to bring Koidu to production. In all, that would amount to a total of $6.2-million, which is the latest estimate of the cost to advance Koidu to production. In return, Magma would receive an equal share of DiamondWorks' 60-per-cent stake in the Koidu project. That would seem a sweet deal if the peace holds in Sierra Leone, and if DiamondWorks' resource estimates hold up. If the DiamondWorks arrangement is any indication, Magma could well be willing to play a larger role with Shore Gold in the future, if coming up with the cash required to advance the Star project becomes a major stumbling block for Mr. MacNeill.
Mr. Menell's involvement with DiamondWorks began with his appointment as a director in 1997, but his role quickly grew through a 1999 share purchase deal when the company, and its employees, ran out of luck in Angola. Mr. Menell's Ekuseni Resources bought nearly $6-million worth of DiamondWorks shares, several months after the murder and mayhem at the company's Yetwene mine. As things turned out, it was not the best of investments for Mr. Menell and Ekuseni, as DiamondWorks' stock has continued to sag, although Ekuseni Resources was subsequently sold to New Mining Corp. some time ago. Nevertheless, Mr. Menell remained on the board of DiamondWorks, until he resigned this spring, a few weeks before the Magma deal was completed.
Mr. Menell and Mr. Steinmetz might seem unlikely partners at first glance, but their paths have crossed before. Mr. Steinmetz's business interests transcend diamonds, reaching into the real estate and technology sectors. Meanwhile, the soon to be 37-year-old Mr. Menell was a former financial analyst at the Johannesburg Stock Exchange who went on to become executive director of Anglovaal Mining. Early in 2001, Anglovaal bought an 11-per-cent stake in Iscor Steel, a major steel producer in Africa. At the time, Anglovaal had great plans for its Iscor shares, but later that year, the company suddenly sold its stake to one of Mr. Steinmetz's companies. Anglovaal reaped a 75-per-cent gain on the sale, although it sold the shares for less than their market value at the time, and both Mr. Menell and Mr. Steinmetz seemed content with their deal.
Just why Mr. Menell and Mr. Steinmetz became interested in a Saskatchewan diamond play is hard to say, but a common denominator would seem to be Jonathan Challis. Mr. Challis is now the president of Shore Gold, but he was a brokerage analyst in the 1990s. Mr. Challis touted enough of promoter Robert Friedland's plays that he became an analyst with Mr. Friedland's Ivanhoe Capital Corp. in 1997, and he also found his way into the boardroom of DiamondWorks, when the company was still run by Mr. Friedland's brother, Eric Friedland.
Mr. Challis was still on the DiamondWorks board when Mr. Menell took his seat the following year. That was a few years before Mr. Challis took over as president at Shore Gold, but he certainly was familiar with the Fort a la Corne diamond play before that. One of his 1996 touts was Kensington Resources Ltd., which had just picked up a share of the Fort a la Corne project. Kensington was a hot play for a time, but it fell on hard times in the late 1990s, as interest in Saskatchewan diamonds all but evaporated.
Things have been a bit brighter for Kensington this year, but Mr. Challis is now touting his own diamond company, and coming up with the increasing amounts of cash required to advance the Star project has proven to be quite a challenge, although things have been a bit easier of late. In the first half of this year, Shore Gold managed to sell just over $2-million worth of its shares, bringing its working capital up to about $1.75-million. The private placement with Magma will more than double that figure, bringing Shore's working capital to more than $3.5-million.
That should be enough to get a good start on an exploration program at Star, but the company still has great plans to take a much larger bulk sample from its mammoth kimberlite pipe. Kensington and its partners, De Beers Canada and Cameco Corp., have just agreed to spend $5.2-million on another round of drilling at its No. 141 kimberlite complex; a drill program that will be quite similar in scope to the 2001 program that was budgeted to cost $4.79-million. That work resulted in a considerable amount of core drilling at No. 141, along with the extraction of a theoretical mass of just less than 800 tonnes of kimberlite, which yielded about 42 carats of diamonds. That haul was in addition to just over 21 carats that was obtained in a 2000 drill program. De Beers is currently updating its modelled prognostications of grade and value, based on those tiny samples, and the results from the planned work this year will presumably result in a revision of the De Beers model.
Shore Gold hopes to advance its Star project in a much different way however. Rather than conducting a mammoth drilling program at Star, which might take a several years as it has at No. 141, the company hopes to come up with a large parcel of diamonds to settle the question of grade and value in one fell swoop. To get a sufficiently large parcel, weighing at least a few thousand carats, Shore will have to extract about 25,000 tonnes of kimberlite. Such a large sample might require about 250 reverse circulation drill holes, or about 25 times the number that Kensington and its partners have planned at No. 141 this year. The expense of such an undertaking would be exorbitant, and as a result, an underground sample would seem to be the best way of collecting such a large batch of kimberlite.
Just how much such a program might cost is hard to say. Large, 5,000-tonne underground bulk samples have been collected in the North for roughly $20-million, and the cost in Saskatchewan would logically be much less than that, although ground conditions and the depth of the kimberlite might complicate matters. In any case, a large bulk sample seems certain to cost several millions of dollars, and it seems likely that Shore will have to come up with more cash in the coming months. Nevertheless, the company seems off to a good start.
The Star kimberlite, which now seems to have caught the notice of Mr. Menell and Mr. Steinmetz, has been Mr. MacNeill's main project since 1996, when the company poked its first holes into the large pipe. That was near the peak of the first Fort a la Corne promotion, and the activity carried Shore's stock to a peak of $1.50 that spring. The drill results were intriguing, but nothing particularly special, and interest in Shore and Star soon dried up along with the rest of the resource sector. That abruptly changed early in 2000, when Mr. Challis and Shore successfully revived the Star project, and its promotion. The latter was quite successful, as Shore's shares soared to a new peak, hitting the $2 mark in March, as the first diamond counts from the 2000 drill program drifted in.
Since then, Shore has been drilling away at Star, coming up with enough macrodiamonds to keep things interesting. Last fall, the company took its first larger sample from Star, drilling one larger hole into the pipe, with the same equipment that De Beers had used on the No. 141 pipe. The one hole extracted a theoretical kimberlite mass of just less than 130 tonnes, and that material yielded diamonds weighing 8.52 carats, for an indicated diamond grade of about 0.067 carat per tonne. That is nothing special, but it is slightly better than the 0.064 carat per tonne result obtained from a theoretical mass of just over 1,000 tonnes obtained from the combined 2000 and 2001 drilling at No. 141. Last year, De Beers modelled a grade of 0.19 carat per tonne for No. 141, based on the 2000 sample, and combined with a favourable prediction for the value of the diamonds, the prognostication has sustained interest in the Fort a la Corne play. With a similar grade from the initial mini-bulk tests, and nothing at this stage to suggest that the Star diamonds are significantly different than those at No. 141, Shore Gold's Star project continues to attract speculative attention along with Kensington's No. 141 play to the north.
Shore's stock managed to poke above the $1 mark this spring, but since then it has drifted lower, touching 60 cents earlier this month, before a new wave of enthusiasm set in. The investment by Magma added to the enthusiasm, as Shore Gold gained another six cents, closing Wednesday at 81 cents. |
