Fri Jun 13, 2003
Tracker 2003-16: Shear - Churchill Play delivers third kimberlite in a row
Publisher: Kaiser Bottom-Fishing Report
Author: Copyright 2003 John A Kaiser
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Kaiser Bottom-Fish Tracker 2003-16
June 13, 2003
Shear Minerals Ltd (SRM-V: $0.96)
Churchill Play delivers third kimberlite in a row
Synopsis: Shear Minerals Ltd (SRM-V: $0.96) and Northern Empire Minerals Ltd (NEM-V: $1.72) announced Thursday afternoon June 12 that drilling on the Churchill diamond play had intersected a third kimberlite. With the first kimberlite announced Sunday and the second on Monday, this makes three kimberlites in a row out of 15 magnetic high or low anomalies scheduled for drilling in the current program. This success rate signals that kimberlites model very well as bulls-eye magnetic anomalies against the magnetically quiet areas of the initial 500,000 acre Churchill block on which 16,307 line km of aeromagenetic surveys were flown last year. Of the potential 217 targets identified, ground geophysics was conducted on 30 targets, of which 23 were prioritized as kimberlite targets. Crews have been re-mobilized to resume ground geophysical surveys to upgrade additional aeromagnetic targets, most of which are land based. None of the targets is supported by discrete indicator mineral trains because till samples taken last year were too widely spaced to allow such patterns to develop, making it impossible to tell which target will turn out to be kimberlite, and which kimberlite has diamond potential. However, the sampling has yielded a regional composite plot with excellent G10 chemistry that tells us there is a field of kimberlites present that includes kimberlites with high diamond potential. The situation is somewhat analogous to that of Ashton and the Buffalo Hills play in 1997 where a large number of magnetic anomalies were very rapidly turned into kimberlite pipes without any local indicator mineral support. The important difference is that the Buffalo Hills region did not have indicator minerals with diamond inclusion chemistry, and while Ashton eventually found 35 kimberlites, most of them diamondiferous, none is sufficiently diamondiferous to be economic. If the Churchill project's initial success rate is any indication of what is to come, Shear and Northern Empire could have a couple dozen pipes in the lab for micro diamond analysis by the end of summer. Such an outcome against a backdrop of good diamond inclusion chemistry within a 1.5 million acre land package would improve the odds substantially that by the fourth quarter Shear and Northern Empire will have one or more pipes with a good enough micro diamond curve to justify mini bulk sampling next winter. With 6-8 week turnaround for micro diamond results it may even be possible to extract mini bulk samples in late summer if results for the initial pipes are encouraging. It will not take long for the market to draw comparisons between Churchill and Ekati. The presence of BHP as a 14% project stakeholder after Northern Empire and Shear waived their right of first refusal on June 2 to buy that stake for $3 million cash will further encourage the comparison. Through Shear and its 51% interest the Churchill play presently has an implied project value (IPV) of $89 million, fair speculative value for a $2 billion dream target at the micro diamond testing stage such as Dia Met turned into reality. Through Northern Empire the IPV is higher at $132 million based on 26.9 million fully diluted and a 35% interest, though if the proposed merger with Stornoway Ventures Ltd (SWV-V: $1.50) is factored in, the IPV jumps to $253 million. With the Churchill play stealing the limelight away from the Aviat play farther north on Melville Peninsula, the market will gravitate toward the better speculative value offered through Shear. The market will be very surprised how quickly the Churchill play will attract highly optimistic valuations. A decade ago Dia Met did not break out of the fair value channel for a $2 billion dream target until micro diamond results were released in November 1991. Today Chuck Fipke's latest venture, Metalex Ventures Inc (MTX-V: $3.60), is carrying an IPV of $191 million even though the $4 million Fipke has spent in the past year in the Attawapiskat area of Ontario has yet to deliver a confirmed kimberlite. The scale, indicator mineral chemistry and initial drilling success of the Churchill play are such that an IPV double that indicated by Shear's closing price on June 12 is achievable in very short order, especially if Shear and Northern Empire deliver a few more pipes during the next couple weeks. It is even conceivable that Shear's price will overtake that of Northern Empire, potentially undermining the Stornoway merger, though once the merger is complete and the Aviat play starts generating its own results Northern Empire will pull ahead again.
Third pipe has good tonnage implications
Northern Empire and Shear have named the three kimberlites Qaumallak (Lightning), Kalluk-1 (Thunder), and Kalluk-2. The third kimberlite, Kalluk-2, was drilled 4 km east of Qaumallak and has a sizable circular magnetic high anomaly measuring 225 m by 300 m. The correlation between anomaly and kimberlite sizes is not known, but if the corrleation is close, Kalluk-2 could have tonnage potential in the 20-30 million tonne range to a depth of 300 metres. The second kimberlite, represented by a circular magnetic low anomaly measuring 150 m by 150 m, was intersected 6 km north of Qaumallak, also a magnetic low anomaly with unspecified dimensions. Qaumallak was described as "macrocrystic kimberlite and breccia with visible olivine macrocrysts and picroilmenites", though no descriptions were provided for the other kimberlites. Bob Barnett will be conducting indicator mineral analysis while Saskatchewan Research Council will conduct caustic fusion for micro diamond analysis. The Qaumallak pipe was intersected under 35 ft of overburden (Apex mixes Imperial and metric measurements).
Nearby Meliadine East play yields region's first kimberlite pipe
On May 27 Cumberland Resources Ltd (CBD-T: $3.02) and Comaplex Minerals Corp (CMF-T: $1.65) announced that the first of 11 targets on the nearby 30,000 ha Meliadine East project had intersected a "mixture of hypabyssal macrocrystic kimberlite and heterolithic breccia in a kimberlite matrix" beneath 14.6 m of overburden. The Meliadine East drilling program should be finished soon. Rumours whisper that Cumberland and Comaplex may have hit as many as ten kimberlites, though we are not likely to hear about it until the "bodies" have been confirmed as kimberlite. The kimberlite targets were generated in 2001 when WMC flew a regional magnetic survey on 150 m line spacing, which it followed up by more detailed surveys with 40 m spacing in search of iron formation hosted gold deposits. WMC has spent $55 million establishing a resource of 22.1 million tonnes of 6.32 g/t gold on the Meliadine West property, but pursuant to a strategic decision to abandon gold WMC has been trying to sell its 56% stake since 2001. Cumberland and Comaplex have a right of first refusal on WMC's interest, and have not been overly keen about generating publicity regarding the project's diamond potential. They own the Meliadine East property 50:50. Kimberlite dykes had been intersected in 1996 but the chemistry proved unpromising. Last year Cumberland and Comaplex collected 82 till samples down ice from the better anomalies and recovered 234 kimberlite indicator mineral grains in 64 of the samples. The indicators included 8 pyrope garnets of which two were classified as subcalcic G10 garnets. While the Meliadine East indicator minerals have some diamond inclusion chemistry, it is not as strong as on the Churchill project.
Cumberland and Comaplex are gold plays that offer free diamond exposure
Cumberland and Comaplex are primarily gold companies, though of the two Comaplex appears eager to develop a more serious diamond focus. Cumberland is spending $10.5 million on a feasibility study for its 100% owned Meadowbank gold deposit which hosts about 4 million ounces of gold. Cumberland's stock price has been rising amid efforts by management to get 3.7 million warrants exercised at $3.00 which expire mid June. Comaplex has 30.9 million shares fully diluted while Cumberland has 46.2 million fully diluted. Speculators seeking exposure to the diamond potential of the Meladine East project get a better bang for their dollar with Comaplex. Through Cumberland and Comaplex speculators pay for gold plays and get the diamond play potential for free. If you ignore all their other projects and assets, Cumberland assigns an IPV of $279 million to Meliadine East while Comaplex assigns $102 million.
Juniors let BHP gain toehold by waiving their rights of first refusal
Shear and Northern Empire have waived their rights of first refusal to purchase the 14% working interest owned by the Hunter Exploration Group, of which Northern Empire's John Robins is a member. As a sweetener to obtain the waiver BHP agreed to pay for the first 200 tonne bulk sample. BHP also agreed to a four year standstill that prevents it from acquiring more than 10% of either company and mounting a hostile takeover bid. Similar terms were obtained by Northern Empire and Stornoway with regard to their Aviat project in which BHP has acquired a 20% stake for $7,125,000 cash. In addition, BHP will buy $1 million worth of Shear stock within the next 12 months at the prevailing market price at a time specified by Shear. In total BHP has invested $10,125,000 cash to acquire minority stakes in Aviat and Churchill from the underlying vendors. When first announced in early May the deals seemed exorbitant, but if the rapid pace of kimberlite discovery continues, the BHP deals could come to be viewed as examples of shrewd timing. In allowing BHP to acquire minority stakes in Aviat and Churchill the juniors will be able to draw upon BHP's Ekati experience and use BHP's involvement to attract institutional investors.
*JK does not own shares in any of the above mentioned securities except Ashton
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