Street Wire:
Diamonds North, Teck bring hope for Arctic diamonds
Diamonds North Resources Ltd DDN
Shares issued 13,047,885 Jun 26 close $0.84
Fri 27 Jun 2003 Street Wire
Also (TEK)
by Will Purcell
The shares of Diamonds North Resources Ltd. took a jump on Thursday, after the company attracted a well-heeled major explorer to one of its Victoria Island diamond projects. Teck is generally known as a metal miner, but the latest arrangement is the second diamond deal that Teck has reached in recent times, and the company has hunted gems on occasion in earlier times as well. As a result of the deal, which covers the Blue Ice project area in the central part of the large arctic island, the Victoria region should be a busy place again this year. The Victoria Island hunt seemed all but dead a few years ago, but Diamonds North has managed to revive interest in the region, through the discovery of several new diamondiferous kimberlite bodies and a re-examination of
some earlier finds that produced some toutable diamond counts.
Nevertheless, the deal with Teck Cominco Ltd. gives the hunt for diamonds on the large island in the Far North some new credibility, as two other diamond majors had given up the hunt in recent years. Although De Beers and BHP Billiton gave up on the region, a few employees of the two diamond majors kept the faith and continue to play a role in the region today. Mark Kolebaba was a senior geologist for BHP until he became the president of Diamonds North, after the company was carved out of what had originally been Major General Resources Ltd. early last year. Mr. Kolebaba was involved with BHP's exploration program across much of the world, but he had spent much of his time working on the Ekati exploration program, in the Northwest Territories, as well as on plays in Eastern Canada. Jacques Letendre, now president of Majescor Resources Ltd., went to work for De Beers in the early 1980s, and he was the company's director of Canadian exploration for two years, when the South Africa-based diamond giant took up the Victoria Island diamond hunt. Mr. Letendre, who has a master's degree in geology from the University of Montreal, again showed interest in the region last year, when Patrician Diamonds Inc. picked up an option on the Washburn and Wellington properties, which are southeast of the Blue Ice ground. Mr. Letendre had become a director of Patrician just months earlier, and when Patrician decided to drop the two plays to focus its efforts elsewhere, Mr. Letendre's Majescor picked up the Wellington option just days later. The Wellington project lagged behind its northwestern sisters as a newsmaker last year, but Mr. Letendre is still a believer in the region. This spring, Majescor and Diamonds North agreed to share a new property in the area, on Stefansson Island, just northeast of Victoria Island. Another former De Beers employee, George Read, had a high opinion of the Victoria Island diamond hunt, although Mr. Read's faith may have dipped just a bit of late. Mr. Read also worked for De Beers for more than a decade, and he was involved in that company's Victoria program. A University of Cape Town graduate, Mr. Read emigrated from South Africa in 1996, setting up shop in Canada as a geological consultant. One of his first projects was working on Major General's original property on the Arctic island, where his geochemical work is believed to have played a key role in the discovery of the Snowy Owl pipe on the Washburn property, southeast of Blue Ice. Mr. Read became president of Canabrava Diamond Corp. in the spring of 2002, and just weeks later, the company had an option deal with Diamonds North for a stake in the Hadley Bay project, which is to the northeast of the Blue Ice property. Canabrava produced some encouragement from a closer look at the King Eider kimberlite, which had been discovered by De Beers in 1997, and signs of a coarse diamond size distribution added to the speculative interest in the region. Last month however, the struggling Canabrava decided to walk away from the Hadley Bay property, choosing instead to concentrate its efforts on two projects in Eastern Canada. The decision was a bit of a surprise and a disappointment for the Victoria Island diamond play, but Mr. Read's decision is thought to be more to a scarcity of cash than a paucity of carats. Meanwhile, Teck's interest in the Victoria Island play is decidedly more recent, although the company first picked up a slice of the diamond hunt on the North Slave craton last year, when it signed a deal with Rhonda Corporation. The agreement allows Teck to earn a 50-per-cent share of the Inulik property, in the centre of the diamond play that sprung up just across the Coronation Gulf from Victoria Island. Teck must spend $5-million on exploration to earn its stake, which can ultimately be increased to a 70-per-cent share, if it completes a feasibility study and carries Rhonda to production. Teck and its partner wasted little time getting things rolling on Inulik, which is a good sign for a busy year on the Blue Ice project. The Inulik
partners managed a drill program this spring, which produced six
kimberlites from nine targets. The 12-hole drill program encountered a series of kimberlite intersections, but the most substantial intersection was just 24.4 metres wide. Another hit produced a 10-metre intersection and a third was five metres wide, but the rest ranged down to just 20 centimetres in width. Still, the Snap Lake dike proved that with the right diamond content, such bodies can be of great interest, and it will take more work to determine if any of the Inulik finds are worth a closer look. That also appears to be the case on Blue Ice, where irregular kimberlite bodies and dikes also appear to be common, along the Galaxy structure that contains most of the finds to date. The diamond counts from some of the existing kimberlites were enough to get the market's speculative juices running, and larger samples will be required to prove or kill the finds. Early last fall, a 6.49-kilogram batch of kimberlite from a four-metre intersection of the Sand Piper kimberlite got the Diamonds North promotion rolling in a big way, when it produced 118 diamonds, including five stones that were large enough to remain on a 0.85-millimetre square mesh. One of the diamonds was over two millimetres long, and two more came close. All that suggested that the body was diamondiferous in a major way, with a healthy size distribution to boot, and Diamonds North's stock doubled on the news. Two other batches of Sand Piper kimberlite have been processed, but the results have not been anything close to what the first batch delivered. The company processed nearly 77 kilograms from a more central part of the body, but the rock produced just 30 diamonds, and none of them remained on a 0.85-millimetre mesh. In 1997, De Beers processed 162 kilograms of kimberlite, coming up with just 28 stones. It is not known if the one tiny sample came from a portion of the body with a higher-grade zone, or if it was the result of the nugget effect. In any case, it will take a far larger sample to get even a rough idea of the grade at Sand Piper, which is near the southeastern end of the Galaxy structure. Some other kimberlites along the Galaxy structure produced intriguing results. One kilometre southeast of Sand Piper, the Snow Bunting kimberlite is a 10-metre-wide body that is about 250 metres long. A 16.7-kilogram batch of rock produced 15 diamonds, including three that remained on a 0.425-millimetre screen. That result was far superior to a De Beers test in 1997 that yielded just 23 stones from 137 kilograms of kimberlite. The Vega body was discovered last year, about one kilometre northwest of Sand Piper, and a six-metre intersection produced 20 diamonds from 22 kilograms of kimberlite. Pegasus, another of last year's finds, is another kilometre to the northwest and appears more substantial than Vega, with an anomaly that is about two kilometres long and up to 75 metres wide. Diamonds North processed 337 kilograms of kimberlite, coming up with 52 diamonds. None of the stones remained on a 0.85-millimetre mesh, although three clung to a screen half that size. Perhaps one of the more intriguing new finds was Sculptor, where Diamonds North recovered 254 diamonds from 209 kilograms of rock. Two of the stones
remained on a 1.18-millimetre screen, and two more clung to a
0.85-millimetre mesh, and 13 per cent of the stones in the parcel were large enough to remain on a 0.425-millimetre sieve. The samples apparently were taken along a 350-metre stretch, and although little is known about the geometry of the body, or variations in the sample results, Sculptor seems worthy of a larger test. Still farther to the northwest, about 7.5 kilometres from Sand Piper, is Carina, which was also discovered last summer. Diamonds North recovered 86 stones from 92 kilograms of rock, although there was nothing particularly noteworthy in the way of larger stones. That was not the case at Gosling, another of the finds made in the 1990s by De Beers, on the northwestern part of the Galaxy structure. A 151-kilogram batch of rock apparently produced just 51 diamonds, but one of them weighed 0.23 carat. Gosling also produced a significant kimberlite intersection, with the diamondiferous rock encountered between 16 metres and 110 metres. Diamonds North found a few additional kimberlites, scattered along the Galaxy structure, but their initial diamond counts did not match the numbers posted by the other bodies. Still, it may be too early to write any of them off, due to the big variations in the diamond content of the other finds in the region. The deal with Teck requires Diamonds North to pay half of the costs for the 2003 exploration program, which carries a $3-million budget, but Teck is providing much of the cash required to meet that obligation, by buying $1-million worth of Diamonds North's stock, at $1.10 per share, well above the 70-cent range where it has been trading for the past two months. The shares come with one-half warrants, exercisable at $1.10 over the next year, which could bring in the remainder of the cash required. Diamonds North has a good chance of getting its hands on that additional cash, as for Teck to actually earn any interest in Blue Ice, it is required to exercise those warrants. As well, Teck must spend another $9.5-million on exploration by the end of 2006. If Teck completes its earn-in requirement, Blue Ice would have a busy four years. In addition to the $3-million to be spent this year, Teck must spend a minimum of $2-million in 2004, and another $3-million by the end of 2005, with the remaining $4.5-million must be spent by the end of 2006. All that would leave Teck with just a 30-per-cent slice of the play. Teck can increase its share to one-half, by spending another $5-million, and it can ultimately increase its share to 70 per cent, by carrying Diamonds North to production. As well, there could be some toutable news from Mr. Letendre and Majescor, on the Wellington project. After a quiet exploration campaign last year, the partners came up with some drill targets that are comparable with the geophysical anomalies along the Galaxy structure. The Wellington targets are on a line representing a southeastern extension of the Galaxy structure, which adds to the hope that some of them are kimberlites. Majescor has just started a drill program that could see five targets drilled in the coming days. Investors were in a bullish mood after the Teck deal, sending the shares of Diamonds North to a 91-cent peak in intraday trading, closing up nine cents on Thursday, at 84 cents.
(c) Copyright 2003 Canjex Publishing Ltd. stockwatch.com
Click here for company snapshot:
new.stockwatch.com
Click here for recent SEDAR documents:
new.stockwatch.com |
