KWG Resources Inc KWGR
Shares issued 74,636,959 May 31 close $0.08
Wed 2 Jun 99 Street Wire
See Spider Resources Inc (SPQ) Street Wire
SPIDER AND KWG HOPE TO RESUME BRAZIL PROGRAM
by Will Purcell
Early this year, Spider Resources Inc. released interim results of its
diamond recovery program from its Contendas project in Brazil. A total of
12 diamonds were recovered from what was believed to be loose epiclastic
crater material contained in two pits. The diamonds weighed a total of 6.58
carats, and ranged in size from 0.19 carats to 1.06 carats, with two of the
12 diamonds weighing one carat or more. The recovery program was considered
to be the next logical step in the exploration of a highly promising area.
Since that time, no further news has been released, to the consternation of
shareholders and interested investors.
The property containing the Contendas structure was originally acquired by
KWG Resources Inc. in 1993, and is more commonly referred to as the Alto
Paranaiba property. The claims currently consist of a larger southern block
encompassing 1,418 square kilometres, and a smaller contiguous northern
block of 160 square kilometres.
Spider reached an agreement with KWG in early 1997 by which it had the
right to earn up to a 50 per cent interest in the Alto Paranaiba property.
To earn its interest, Spider was required to finance a $1.8-million (U.S.)
exploration program. This amount was twice the amount spent by KWG to that
point. A significant portion of the funds were indeed spent, however it
appears that Spider ultimately ran short of funds to complete its earn in.
The two companies have had a history of working together, having previously
entered into a joint venture operation to explore the James Bay lowlands
region straddling the Ontario and Quebec border.
By September 1998, ACA Howe had determined that Spider had earned a 25 per
cent interest in the south block of the Alto Paranaiba property, and a 50
per cent share of the north claims. In October, KWG and Spider reached
agreement with Line Islands Exploration Inc. whereby Line Islands could
acquire a 50 per cent interest in the north block, and a 10 per cent share
of the south property, in consideration of $500,000 in cash and exploration
expenses over a two-year period.
The current lack of news can primarily be traced to the financial woes of
the joint venture partners. It appears that Line Islands and Spider have
exhausted most of their cash reserves, while KWG remains suspended from
trading and remains under creditor protection. As well, KWG and Spider have
had multiple changes in their respective boards of directors in recent
times. Norm Brewster, formerly a director of Spider, indicated he no longer
had much involvement with the project. He said that, to the best of his
knowledge, the project was currently inactive.
Pierre Gauthier, formerly a director of Spider, KWG resources, and chairman
of the beleaguered St. Genevieve Resources Ltd., said that negotiations
were currently in progress that would lead to a new source of funds for the
project. He expected an announcement could be made within 30 days. Mr.
Gauthier acknowledged that such an agreement could have an impact on the
property ownership, but preferred to offer no comment as to what those
changes might be, or whether a new partner would be joining the existing
joint venture arrangement.
The Alto Paranaiba property is approximately 300 kilometres south of
Brasilia and straddles the border of Minas Gerais and Goias states. The
region's climate is considered tropical, with a hot, wet summer season from
October to March. Despite the tropical climate, the region is otherwise
comparable to the foothills of Alberta, or Montana. The natural vegetation
of the area is primarily grassland, with a few poorly formed trees and
shrubs. Thicker bush predominates in the river valleys. The land is
primarily used for grazing.
The Paranaiba River flows from the southwestern portion of the property to
the north central area, where it joins with the Rio Verde and abruptly
turns to the southeast. The northeastern portion of the property is lower
lying with rolling hills, while the terrain is higher and more rugged over
the western portion of the region. The Contendas structure is just north of
the Paranaiba, near its junction with the Rio Verde. The property enjoys
fairly good access, with paved roads connecting Brasilia to local
communities nearby. Access to the property itself is possible primarily on
dirt roads, however.
The property appears well situated in a largely unexplored region. The
SouthernEra Resources and Canabrava Diamond Corp. joint venture property is
just to the southeast, and a large Monopros block is also nearby. The
region experienced a major staking rush several years ago and KWG appears
to have been an early entry into the race.
The company operated a small alluvial diamond recovery plant in 1993 on the
Charneca portion of the property and recovered diamonds at the approximate
rate of 0.02 carats per tonne. In 1994, the plant was moved to the
Paranaiba terrace and 190 diamonds were recovered with a total weight of
301.5 carats. It was speculated that these diamonds came from an eroding
source within the river drainage system.
Local operators, or garimpeiros, have conducted alluvial dredging and
terrace excavations on the property for years. Several large stones have
been recovered by the garimpeiros, including stones weighing 20, 64, 107,
and 201 carats. In the summer of 1998, a garimpeiro recovered a 350.65
carat gem from a portion of the Paranaiba River approximately six
kilometres upstream of the Rio Verde, and four kilometres from the
Contendas structure. This stone was a fine gem, described as rare white and
having high clarity with no inclusions. The stone is believed to be worth
in excess of $2-million (U.S.). It is worthy to note that larger diamonds
had not previously been recovered from this portion of the property.
Documented evidence indicates that, as a whole, the Paranaiba River and its
main tributaries have yielded 49 diamonds with weight greater than 50
carats. The largest stone recovered was the 727 carat Presidente Vardas
diamond, which was found in 1938.
Mr. Gauthier said that there is ample evidence of recent garimpeiro
excavations on the property. An estimated 5,000 carats were recovered from
a pit estimated to be 200 by 100 metres in size. The bulk of the recovered
stones was reported to be from one half carat to two carats, but several
stones of five to 10 carats weight were also recovered. The largest stone
recovered from this pit weighed a reported 20 carats. ACA Howe stated in
their September 1998 report that the operation probably excavated reworked
material from an adjacent primary source. Two other garimpeiro excavations
were found nearby. One of the operators apparently advised KWG that he had
recovered 16 stones weighing between 0.2 to 0.5 carats from one small pit.
A drainage survey, photo interpretation, and a surface sampling program
were undertaken on the property during 1996 and 1997. A number of circular
or oval features were identified that coincide with topographic
depressions. Five of these were examined in detail.
KWG conducted a very limited diamond drilling program in late 1997 on the
Contendas structure. A total of five holes were drilled on linear magnetic
anomalies, rather than on the interpreted circular features which are now
assumed to be the attractive targets. The fourth of these holes was drilled
from a site 150 metres south of an interpreted vent. Two separate dyke
intersections were noted, each approximately one to two metres in
thickness. It is now believed this interpreted vent is in fact a zone of
dykes extending from the core vent area. Analysis of the dyke material
suggested that the rock was intermediate between lamproite and kimberlite,
although it appears closer to olivine lamproite. A second analysis
suggested the rock was orangeitic. Mr. Gauthier said that the joint venture
partners considered the rock to be lamproite, however.
Early this year, the joint venture operated a small diamond recovery plant
on the Contendas structure. This plant was to process material taken from
small pits on a 100 by 100 metre grid close to the previous garimpeiro
operations. The primary purpose of the operation was to identify
diamondiferous zones. It was from this operation that the 12 diamonds were
recovered earlier this year. The plant has not been operating for some time
due to a breakdown of the processing equipment, however.
The ACA Howe report recommended a multiphase exploration program. In
addition to the pit program, they recommended a 32-hole reverse circulation
drill program to test the interpreted structures to a depth of 100 metres.
In addition to the Contendas program, the report suggests further ground
work and a limited reverse circulation drill program on other targets,
including those upstream from the 350 carat diamond discovery. The proposed
phase one budget includes $650,000 for the Contendas area, and $250,000
elsewhere on the property.
The second phase of the proposed program would consist of core drilling the
diamondiferous targets to a depth of 300 metres to obtain samples for
petrographic and geochemical analysis. If warranted, bulk sampling of
prospective targets would also be conducted in the second phase of
exploration. As well, the report recommends extending the drainage survey,
conducting high resolution aeromagnetic surveys, a limited ground magnetic
survey, and a possible additional pit excavation program on any new target
areas. The phase two budget is estimated at in excess of $1.5 million.
Mr. Gauthier indicated that a drill program was indeed planned on the
property. He said that the program would use either an augur drill or
diamond core drill. It appears likely that any exploration program will be
on hold until suitable financing is arranged, either by the existing joint
venture partners, or through the addition of an additional partner.
The available information is too sparse to speculate on tonnage, grade or
valuation figures for the property. Mr. Gauthier said the available tonnage
inferred was "huge", and indicated that 70 per cent of the diamonds
recovered from the property were of gem quality. He could offer no
indication of grade, however.
Some very crude calculations of grade can be made. The main garimpeiro
operation covered an apparent surface area of 20,000 square metres. Such an
operation may have involved the processing of 80,000 tonnes of material,
although this estimate is subject to a very large error. The assumed depth
of the pay zone of this garimpeiro operation is based on the apparent
thickness of the richer layer encountered in the two pits excavated by the
joint venture nearby, which is apparently near two metres. Such a figure
would imply a grade of 0.08 carats per tonne. The pit operation processed
about five tonnes per day for approximately 40 days. This would imply a
grade of 0.03 carats per tonne, although much of the material processed was
considered to be low grade. These figures are primarily for reworked
material, and do not in any case represent the source grade. It is worthy
to note that the original KWG recovery operation in 1994 reportedly broke
even.
Brazil has long been an enigma for diamond explorers. The region has
produced many large, fine gemstones through the years, all from alluvial
sources. Kimberlite was first discovered in the region in 1969, and to date
over 500 bodies have been identified. No economic pipes have been
discovered in Brazil, however two diamondiferous pipes were discovered by
Teck in 1996. The search goes on, however. The ACA Howe report concludes
that the Contendas structure is a high priority target for the location of
the primary source of the diamonds extracted from the garimpeiro pits and
the adjacent Paranaiba River.
The shares of the joint venture partners continue to trade at very low
prices. Spider has traded in the four to five cent range since December,
although it enjoyed a brief surge to the eight cent range in late February
after the positive diamond recovery news. Line Islands shares change hands
very infrequently, and trade in the 40 to 50 cent range. Trading in KWG and
its parent St. Genevieve remains halted, however their shares occasionally
do trade over the counter. KWG has been recently traded in the three to
eight cent range, while shares of St. Genevieve have been trading in the
one to two cent range.
The next news of significance to be announced may well be an announcement
of new financing for the joint venture, and the details of the future
exploration program. Current investors hope the wait will be a short one. |
