Superior makes new start on Aurora's hand-me-down
Superior Diamonds Inc SDX
Shares issued 22,659,115 Oct 22 close $0.55
Thu 24 Oct 2002 Street Wire
by Will Purcell
The diamond promotion of Superior Diamonds Inc. is off to a pleasing start, as the company's stock has nearly doubled since it began trading early in September, placing an improved market capitalization on the project. Superior Diamonds was formed when Aurora Platinum Corp. decided to spin off its diamond projects into a new company, finding a likely shell in Consolidated Ouro Brazil Inc., which was a hapless explorer that most recently had been poking around in South America for gold and diamonds. The reverse takeover and new focus has caught a bit of attention from the market, but Superior is hunting diamonds in a region that has yet to produce a significant find. Nevertheless, there are some encouraging signs from the district, close to the Manitoba border, well to the west of the Victor project being advanced by De Beers. The deal was actually Aurora's second crack as spinning off its Ontario diamond play to another public company. Late last year, Aurora initially proposed to trade its diamond project to Maxy Oil & Gas Inc., an arrangement that was much closer to home for Aurora's president, John Paterson. Mr. Paterson, a geologist by trade, is also president of Southwestern Resources Corp., which owns roughly 20 per cent of both Aurora and Maxy, and he is on Maxy's board as well. Under the terms of that deal, Maxy was to consolidate its shares and issue new stock to Aurora's shareholders, such that they would wind up with a one-third stake in what was to be known as Maxy Diamonds. All that was missing was a valuation of the diamond assets, a fairness opinion and the approval of the regulators and shareholders. That is often a time consuming process, but in this case it took just a week for the deal to fall apart. Maxy and Aurora agreed to call off the deal after a preliminary evaluation of the diamond assets failed to support the share exchange ratio. At the time, Maxy's shares were trading for about a nickel, and with just over 33 million shares outstanding, the market value of the company was about $1.65-million, quite close to the company's reported book value. As a result, the aborted arrangement appeared to value Aurora's diamond asset at about $800,000. Although the Maxy deal had fallen through, Mr. Paterson, who spent much of his career hunting Archean gold deposits in Australia, seemed intent on spinning off the diamond project, and Aurora went shopping for a new method of unloading the Ontario play. It settled upon Consolidated Ouro, which was worth about $3,600 according to its financial statements at the end of May, and with its stock trading at just 15 cents prior to the news, its 3.7 million shares were worth about $550,000, seemingly reflecting the value of the shell. As a result of the arrangement with Consolidated Ouro, Aurora now owned about 58 per cent of Superior Diamonds, which would suggest that the diamond assets were valued at about $750,000, which was quite similar to the Maxy arrangement. Those values are well below the price tag that speculators now seem willing to bestow on Superior and the diamond project. When superior began trading at 30 cents early in September, the company had about 23 million shares outstanding, which would imply a value of about $7-million for the diamond play, and with the company's shares now trading for more than 50 cents, the implied market value of the company has grown to more than $10-million. So far at least, that optimism seems based primarily upon hope, as there have been no discoveries in the region so far, and most of the diamond interest in Ontario has been centred on the area well to the east. The Aurora project covers three large areas in the far northwest corner of Ontario. Area B straddles the Manitoba border and extends about 200 kilometres to the east, while Area C is just to the south, about 75 kilometres to the east of the Manitoba border. Further to the southeast is Area A, which is located just to the north of Lansdowne House. Area A is closest to the Attawapiskat diamond play, centred around the Victor pipe, about 250 kilometres to the east-northeast of Lansdowne House, while most of the other two areas are more than 400 kilometres to the west of Victor. The De Beers Victor project is quite some distance east of the Superior project, but it remains the best shot for an Ontario diamond mine, and it has increased interest in the area now being examined by Superior. Progress at Victor has been excruciatingly slow however. The pipe was discovered in the latter half of the 1980s, but it was not mini-bulk sampled until 1997. That test processed about 330 tonnes of kimberlite, and about 108 carats of diamonds were recovered, for an indicated grade of 0.33 carat per tonne. The grade was quite modest, but the diamond value apparently was toward the upper end of the scale, as the stones were reportedly worth $154 (U.S.) per carat. That was encouraging, as Victor could contain nearly 40 million tonnes of kimberlite. De Beers mulled that result over for a few years, then decided to proceed with a much larger test. In 2000, De Beers extracted about 10,000 tonnes of kimberlite from the large pipe, and it was processed last year. De Beers was typically tight-mouthed about the result, but rumours suggest that the bulk sample produced a grade somewhere between 0.25 carat per tonne and 0.45 carat per tonne. Both figures are probably accurate over at least a portion of the body, which is believed to contain different facies of kimberlite, with different diamond grades. Whatever the grade and value of Victor, De Beers thinks enough of the project that it continues to advance it toward a feasibility study, although the pace continues to be slow. Victor is just one of about 18 kimberlites that De Beers found on its Attawapiskat property, but Victor was the only one that displayed any real economic promise. As well, there were a few additional finds nearby that were discovered by the Spider Resources Inc. and KWG Resources Inc. joint venture in the early 1990s, but the MacFadyen bodies proved to be just marginally diamondiferous. Spider and KWG had a bit more luck further to the west, toward Superior's Aurora diamond project. In 1994, the partners discovered five kimberlites roughly strung out along a north-to-south line, about 120 kilometres to the west of Victor, and approximately 100 kilometres to the east of Superior's Area A. Three of the finds were not worth a closer look, but Spider still touts its Kyle-3 and Kyle-1 bodies whenever it finds the opportunity. The Kyle-1 body is the southernmost pipe in the line, and it was the key component in the original Ontario diamond promotion of Spider and KWG. The pipe is considerably smaller than Victor, but it could contain nearly 15 million tonnes of kimberlite to a depth of 500 metres. Spider touts a grade of about 0.6 carat per tonne for Kyle-1 based on the recovery of 3.71 carats from 6.22 tonnes of kimberlite, but that result includes all of the
smaller macrodiamonds and micro-sized stones that were recovered,
significantly inflating the grade of the sample. The diamond haul included 4,395 diamonds, but only 793 of them were macrodiamonds, and just a smaller proportion of those were large enough to be considered of a commercial size. There were significant variations in diamond grade across the pipe, and the partners made the most out of the higher-grade sections in their promotions. The results were good enough to attract the notice of Ashton Mining of Canada for a time, and the company took a 1.8-tonne mini-bulk test from Kyle-1 for macrodiamond recovery. Ashton never revealed the details of that program, but it said the grade was less than 0.10 carat per tonne, which was enough of a disappointment that it called it quits. Kyle-3 is the most northwesterly of the Spider kimberlites. Although the grade at Kyle-3 is modest at best, the body has also produced some higher-grade results, at least in limited samples. Spider and KWG have processed about 2.72 tonnes of kimberlite from the complex body, recovering 1,733 diamonds, although only 113 of them were macro-sized stones. Kyle-3 also appears to contain a significant amount of kimberlite, perhaps more than 10 million tonnes, despite its complex shape. The diamond content seemed well below the levels required to keep interest in the project alive, but Spider has been spinning a promotion based on a high-grade dike that is a part of the larger body. The company has touted individual sample grades in excess of two carats per tonne, but those were based on very small samples and once again, the calculated grade included microdiamonds as well. Spider and KWG have more ground still further to the west, toward Superior's diamond play. The Spider No. 3 project area is immediately west of the Kyle line of kimberlites, and parts of the property are close to Superior's Area A. In the mid-1990s, the joint venture partners conducted preliminary exploration, spending about $1.5-million on geophysics, till sampling and mapping. Nothing came of that, but early in 2001, De Beers took an interest in the region and agreed to spend another $1.5-million to
earn a 50-per-cent stake in the project. De Beers completed more
preliminary work last year, and early this year, the company started poking holes into targets on Spider No. 3. In all, 13 targets were tested, but no kimberlites were encountered. One of the holes returned a sniff of base metals, but with none of the targets containing anything that even remotely suggested diamonds, De Beers apparently plans to call it quits at Spider No. 3. Canabrava Diamond Corporation is another active diamond explorer in the region, and it is one that the Superior crew is clearly familiar with. Canabrava was formed in 1994, when Southwestern spun off its Brazilian diamond play to the company, making Southwestern its largest shareholder. Mr. Paterson was president of Canabrava for three years and a director for
seven, until he quit earlier this year. Lawyer Thomas Beattie is
Canabrava's vice-president and secretary, in addition to being a director of Superior. Canabrava did turn up a kimberlite on its Kat project, which is a large area surrounding the Victor pipe, but it was just barely diamondiferous, with just seven microdiamonds recovered from about 261 kilograms of kimberlite. The company has also been exploring a large area further to the west, named Frontier, which stretches from the Manitoba border to James Bay. Canabrava and Navigator Exploration Corp. were partners on Frontier, but nothing much has been heard of the play since early last year. Despite the paucity of kimberlite finds in the area surrounding Superior's area of interest, there are some mildly encouraging signs from the region, enough that a few diamond majors have shown some interest in the general area. The company has a number of prospective targets, and surface sampling has produced modest numbers of kimberlite indicator minerals. Since the deal, Superior has been poking around a bit, and it apparently has a proposed budget for the project. The company will likely do additional work over as many as 16 targets, and if the results are encouraging, a drill program could be in the works. The proposed budget carries a price tag of just over $1-million, but that may not be a significant burden for the company, as it managed to sell four million shares this summer, at 25 cents each. Mr. Paterson has faith in his company's play, as he picked up 200,000 of those shares, to go with his 600,000 options, also exercisable at 25 cents. That faith has been paying off, at least on paper, as Superior closed unchanged Wednesday, at 55 cents. |
