Diamonds North looks farther east for gems
Diamonds North Resources Ltd DDN
Shares issued 22,903,688 Feb 18 close $1.50
Thu 19 Feb 2004 Street Wire
by Will Purcell
Diamonds North Resources has a large new project in Nunavut bordering on a currently hot play developing on Melville Peninsula. The company has been working quietly in the region for some time and it started picking up ground last year in a region about 45 kilometres south of Kugaaruk. Since then, Diamonds North has become an equal partner with BHP Billiton on a much larger block of ground that surrounds its original stake. BHP is a big believer in the diamond prospects of the region, as it has interests in much of Nunavut, where a number of significantly diamondiferous bodies have been found. As a result, the new play should see a significant amount of work in the coming months. Even better, it could prove to be quite promotable. The original 170,000-hectare block was acquired by Diamonds North after a regional program of surface sampling produced significant numbers of indicator minerals, including one sample that contained an array of over 1,000 grains, including a healthy dose of the especially promotable peridotitic and eclogitic garnets. The abundance of minerals suggested that clusters of kimberlites might be found on the property, and Diamonds North is chomping at its drill bit to start things rolling. The company plans to get a geophysical survey under way within weeks, and a detailed surface sampling program is expected during the summer months. Diamonds North and BHP also applied for prospecting permits in the area late last year and they obtained nearly 900,000 hectares when the successful applications were revealed earlier this month. To go with the permits, the new partners also staked nearly 500,000 hectares of claims in the region. The net result was a large expanse of ground surrounding the initial Diamonds North block, covering the region to the east, south and west of Pelly Bay. BHP is not the only diamond major that thinks the region could be diamond country, although the company does have the largest land position in the district, including ground that borders on the project it is sharing with Diamonds North. Kennecott Canada now has a block that is about 10 kilometres south of the Diamonds North and BHP project, while De Beers has acquired big blocks of ground about 90 kilometres to the southwest and 75 kilometres northwest of the Diamonds North and BHP play. As things turned out, BHP had been quietly collecting surface samples in the region independently of Diamonds North, and the two rival programs produced some promising indicator results that expanded the diamond prospects across a much wider area surrounding Pelly Bay. Rather than proceed independently, the major and the junior agreed to share much of their ground in the region. The two companies start as equals when it comes to paying the bills, but BHP may end up with a 65-per-cent share of the project, if it decides to complete mini-bulk and bulk samples of up to 3,000 tonnes at its own expense. The arrangement had Mark Kolebaba, the president of Diamonds North, suitably enthused. He described BHP as a great partner to have, due to its diamond commitment and success, but the fact that Mr. Kolebaba is no stranger to BHP probably played a big role in securing BHP as a partner. The Regina-born Mr. Kolebaba started working for BHP in the early 1990s, but Diamonds North's diamond hunter has a gold and metals focus at the time. His first big project for BHP was the Boston gold deposit at Hope Bay, roughly 600 kilometres west of his new diamond project. That was when BHP was just starting to produce excitement at Lac de Gras, and the notion of diamond exploration appealed to Mr. Kolebaba, who had first heard about it while he was giving a tour to a group of BHP executives. Nevertheless, it took a few years before Mr. Kolebaba was able to take up diamond exploration with BHP, which may have preferred that he stick to gold. As a result, Mr. Kolebaba's diamond apprenticeship came in Venezuela, in the Guaniamo region, where he was part of the work that produced a number of kimberlitic dikes. Some of those bodies were significantly diamondiferous, and although the size and geometry made the finds uneconomic, they gave Mr. Kolebaba's resume a boost and BHP hired him back when it was setting up its operation in Kelowna. Back with BHP, Mr. Kolebaba was primarily involved with the development and exploration of Ekati, but he was also running the company's exploration efforts in Eastern Canada. In 2002, Mr. Kolebaba moved on. He took the top job with Diamonds North after the company was created by carving the diamond projects out of Major General Resources. Since then, Mr. Kolebaba and his company have been working at reviving an old diamond play on Victoria Island, about 800 kilometres west of the new project, and Diamonds North has been producing some toutable diamond counts from several kimberlites on Victoria Island. Mr. Kolebaba has proven to be an effective promoter with the Victoria play. A Diamonds North share cost less than 40 cents in the summer of 2002, but the price quickly doubled on the first good news from the region, and it has continued to appreciate, as Mr. Kolebaba's play attracted increasing amounts of attention. The stock recently crested at $1.45, fuelled by rumours of the new deal and hopes of additional sparkle from Victoria. Diamonds North should have a steady stream of diamond counts from several Victoria Island kimberlites over the coming weeks, and that should keep the notoriously impatient market mollified, until the company can get its Pelly Bay project rolling in a promotable way. As well, a number of rival projects on Melville Peninsula and neighbouring Baffin Island could provide some additional grist for Mr. Kolebaba's promotional mill. At least part of BHP's enthusiasm for the area surrounding Pelly Bay stems
from its exploration results on its Qilalugaq property, about 150
kilometres to the southeast. For a few years now, BHP has been working in the area running across the southern end of Melville Peninsula, running from Repulse Bay to Committee Bay, and the company has come up with a cluster of nine kimberlites. BHP has not said a great deal about its finds, but they are all believed to be at least weakly diamondiferous, and some of the discoveries yielded significant diamond counts. One of the finds was sufficiently encouraging to prompt BHP to process a nine-tonne mini-bulk test, and the program produced 70 diamonds larger than a 0.85-millimetre sieve, with a total parcel weight of nearly 2.4 carats. That sample grade was just a bit better than one-quarter of a carat per tonne, but it apparently is enough to warrant a larger test of the pipe. BHP is expected to take mini-bulk samples from some of its other finds on Qilalugaq, and drilling of some new targets could deliver a new crop of carats. BHP thought enough of the Melville play last year that it bought a minority stake in the Aviat project, which is being worked by Stornoway Diamond. Like BHP, Stornoway had been quietly working in the region for a few years, but its Aviat play grew dramatically in size a year ago, with the addition of a large block of prospecting permits, prompted by a kimberlite discovery in the summer of 2002. Early last year, the news that Stornoway's outcrop was significantly diamondiferous ignited a market frenzy that brought a flock of explorers to the region and gave Stornoway's stock a big boost. It was a busy summer on Melville and the surrounding region, but most of the ground in the region still has seen limited work at best, and the diamond counts from Stornoway's AV-1 outcrop remain the most promotable part of the Melville play.
So far, Stornoway has come up with 69 diamonds larger than a
0.85-millimetre cutoff, and that haul nearly matched what BHP had produced at Qilalugaq, although the AV-1 diamonds had come from just 1.67 tonnes of kimberlite, less than a fifth of rock processed in the BHP test. There were some larger diamonds in the AV-1 sample, including 28 stones that remained on a 1.18-millimetre sieve and two that clung to a 2.36-millimetre screen. As a result, AV-1 would seem to have a shot at delivering a toutable sample grade, if Stornoway and its partners decide to take a larger test this year, and a positive result would give Mr. Kolebaba a helping hand. There have been a few other finds close to AV-1 that add to the Melville promise and stirs interest in the new project of Diamonds North. Stornoway has processed a limited sample from a second kimberlite, as well as from a string of kimberlite boulders that seem to originate from yet another body, and the diamond counts appear encouraging. The diamond potential of the region extends northward onto Baffin Island, where Twin Mining has come up with two significantly diamondiferous bodies, including its Freightrain pipe that has a modelled grade of up to 0.5 carat per tonne in spots. Kennecott and De Beers are also active on Baffin, and Kennecott produced three quick kimberlites with three drill holes last year. All three contained diamonds, and the large Tuwawi pipe produced some larger diamonds that pointed to a coarse size distribution curve. The company thinks the grade of the pipe is below its economic threshold, but the discovery adds to the interest in the diamond hunt across the Far North. Diamonds North's shares have been on a tear this month, and the array of significantly diamondiferous pipes scattered across a large swath of the region give the company's Pelly Bay project some instant promotability. The stock hovered near the $1 mark to start the month, but it surged to a $1.45 peak last week, before trading was halted, pending news of the new play. Speculators continued to be in a buying mood on Tuesday when Diamonds North's shares resumed trading. The stock soared to an intraday high of $1.70, before settling back to close up seven cents, at $1.52. Today it closed down two cents at $1.50.
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