KIM Report

Bending Clifford’s Rule

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In his famed 1966 paper, T.S. Clifford noted that diamond-bearing kimberlite pipes were always ones that intruded regions of ancient continental crust. To be more specific, these regions are Archean in age (>2.5 billion years old) and formed the tectonically stable cores of continents known as cratons. Thus “Clifford’s Rule” states that diamondiferous kimberlites occur in geologic regions that have been tectonically stable (i.e. cratons) since the Archean and that diamond exploration should focus on those areas.

 

However, over the past forty years these regions of high diamond potential have been thoroughly investigated for diamond deposits and a number of world class deposits have been found in this manner, such as those in the Canadian arctic. As time passes, there are fewer and fewer areas of apparent diamond potential that remain unexplored. Diamond prospectors must start looking in places that appear at first not to follow Clifford’s rule. More diamond discoveries are being made in regions where Archean craton is not obvious.

 

Attending this August’s 9^th International Kimberlite Conference, a prevalent theme was diamond exploration and discoveries in atypical areas falling outside of Clifford’s rule. For example, one presentation was regarding the nature of the Arygle mine, owned by Rio Tinto plc. Although situated in a Proterozoic (between 2.5 and 0.542 billion years old) mountain belt, Argyle has probably the highest diamond grade of all operating diamond mines. This presentation suggested the possibility of Archean mantle existing kilometers below the younger material at surface and thus providing the conditions optimal for diamond stability. Another example of developing properties in non-Archean areas is the diamondiferous Carolina kimberlite in Brazil. Located in the 1.8-1.2 billion year old Amazon craton, this kimberlite and others near it are being investigated by Sola Resource Corporation (TSX.V-SL). The characteristics of this kimberlite discovered thus far show no significant deviation from those of kimberlites situated in Archean cratons.

 

Regardless of how the current market environment is treating diamond stocks, the increasing core demand for diamonds has pushed diamond exploration to looking at areas previously considered to be at the fringes. Examples of significant discoveries in these areas include those mentioned above, plus Fort a la Corne, Saskatchewan; and Guaniamo, Venezuela.

 

The rising demand for diamonds has caused the small group of large companies who control the bulk of the rough supply (De Beers, Rio Tinto, BHP Billiton) to raise prices. As with any commodity, when price rises, new technology and new exploration philosophies are employed to discover deposits in previously unexplored areas.

Conference-Induced Hiatus

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Sorry for the lack of updates the past few weeks. My time had been taken up in preparing my research for presentation at the aforementioned 9th International Kimberlite Conference in Frankfurt, Germany.

The conference was a big success. Canadians made up about a third of the ~450 participants, with Russia, Australia, the U.K., the U.S.A., Japan, South Africa, and Germany also making large contributions. Although mainly an academic conference, representatives of companies such as Rio Tinto, Diamondex (TSX.V-DSP), BHP Billiton, Metalex (TSX.V-MTX), Indicator Minerals (TSX.V-IME), Teck Cominco, Shear Minerals, and Shore Gold were present. Private company De Beers also have a strong presence through both its exploration/mining arms and the Diamond Trading Company (DTC). Topics of discussion included diamonds and their formation, kimberlite emplacement, exploration techniques, and the mantle.

More information on the highlights of the conference to come…

The long and winding road to a Quebec diamond mine

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Stornoway Diamond Corp. (TSX-SWY) saw a 24.14% jump in stock price today, up seven cents to $0.36/share. The rise followed the resumption of trading following a halt this morning due to a financing-related news release. SWY reported that they have received $22 million from a private placement of 24,444,444 common shares at ninety cents a share. This is a premium of 195% on top of the opening price of $0.305 today. The participants in the private placement are Agnico-Eagle Mines Ltd. (TSX-AEM) and Lorito Holdings Ltd. This $22 million will go to pay off debt in the form of debentures held by AEM and Lorito. AEM is already a significant shareholder of SWY, and with this transaction they will hold 17.6% of the outstanding shares. After the completion of this transaction, SWY will be debt-free.

 

This transaction is something of a coup in the current market. Juniors have been struggling to obtain funds to develop their projects and pay off debts. The credit market has been mostly deaf and blind to the woes of these companies as many lenders are themselves finding it a struggle to remain solvent. For a mining and exploration junior to pull off a private placement at a pre-subprime crisis share price is something of a shock (albeit a pleasant one) to investors and analysts who have become used to seeing the market cap of companies such as SWY slide by fifty to eighty percent. By offering equity to pay off its debts, SWY has managed to find a creative alternative to solving its cash problems in a bear market. The main upside here is that the dilution of the stock is one third of that if SWY were to issue stock at market price.

 

Now with balanced books, SWY faces only one major and immediate hurdle – to finance the construction of a diamond mine on their Foxtrot property in Quebec. This project, focusing mainly on the Renard kimberlite pipes, but also the Lynx and Hibou kimberlite dykes nearby, is joint owned 50/50 with SOQUEM and is fully described in an earlier article. SWY’s share of the mine construction costs will likely be over $100 million. The actual numbers are due out in September with the pre-feasibility study. The report was initially due this summer, but similar projects submitted earlier by Peregrine and Shore Gold tied up AMEC, the company contracted to conduct the study, until recently. Should the report be positive, as the geology and current diamond prices suggest, a significant amount of capital investment must be made to bring in the needed infrastructure for a mine. SWY will have to carry at least 50% of these costs.

 

Immediate of these costs is road access. Renard will not be an arctic diamond mine, dependent on airlifts and unpredictable ice roads for supply, but rather a site accessible by land year round. SWY is in talks with Western Troy Capital Resources Inc. (TSX.V-WRY), Strateco Resources Inc. (TSX-RSC), and Eastmain Resources Inc. (TSX-ER) – other mineral/metal exploration companies with projects in the Otish Mountains, local communities, and the Quebec government to build the “Route Monts Otish”. This partnership would provide strong benefits for all parties involved by sharing the cost of construction. SWY will need to bring September’s report to the table when the parties decide who pays what share of the road costs. It is also possible that the construction will bring in electricity service as well, further reducing the large bill SWY faces.

 

After September, SWY will have to come to a decision on how to fund the mine. Even if the Quebec government pays its full 50% share and the aforementioned road plan comes through, the cost to SWY will be well into the tens of millions of dollars. The company has a number of options to consider in obtaining the cash necessary to build the mine:

 

(1) They can go the traditional route and get financing from credit institutions. If the credit market simmers down by the winter this may be a possibility. Factors that would attract a lender are that the company has settled its accounts, the Foxtrot property has high and fairly well established diamond potential, and the company has many other promising secondary properties such as Aviat and Churchill (the latter a JV with Shear Minerals).

 

(2) Future private placements can be made. This will dilute the stock, but by how much is dependent on how the share price is doing at the time of issue. If today’s rise in share price is any indication, a positive report in September may be the catalyst investors need to return the company to the ~$1.00 level. In addition, management has established that they possess some expertise in brokering strong deals with large investment players (Rio Tinto is another major shareholder, with ~11% of the company).

 

(3) The company may bring in a third party to purchase a portion of their share in exchange for funding most of SWY’s costs a la the Franco-Nevada strategy.

 

(4) Interested parties could be sold secondary assets in exchange for cash to fund the mine. In addition to the aforementioned Aviat and Churchill projects, SWY holds promising advanced and reconnaissance stage projects in Nunavut, Ontario, the Northwest Territories, Alberta, and Saskatchewan.

 

It is likely the company will use a mix involving one, some, or even all of the above options to in order to proceed with construction.

 

Given that Quebec is regularly acclaimed as one of the top mining-friendly provinces in Canada, and that the province has a direct stake in the project, there seems to be fewer speedbumps on the road to Renard. Management with have to use every means at their disposal in order to navigate markets wracked with investor apathy towards diamond players.

 

Disclaimer: The author holds 2000 shares of SWY. This article is based on the personal opinion and experience of the author. Please do your own due diligence when investing.

 

 

More potash for Marifil Mines Ltd.

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Yesterday, Marifil Mines Ltd. (TSX-MFM) announced that it had expanded upon its Potash discovery on its K-2 project in Argentina. The K-2 project is 100% owned by MFM and covers 100,000 hectares in the Neuquen basin. As mentioned in a previous article, MFM first announced that it had discovered two potash horizons during petrophysical logging of an abandoned oil well drill hole on their property close to Rio Tinto’s Rio Colorado potash mine. The data from the logs from the two drill holes suggests that the two horizons extend along strike for at least 13 km. The grade of the newer hole varies between 11% and 20% K2O. The intecepts of potash recorded by the most recent logging activity were 5.8 m and 5.4 m thick. MFM expects a NI 43-101 complaint report on the deposit within the next couple of weeks.

Large carats at Gahcho Kue, worth the wait?

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Earlier this month, Mountain Province Diamonds (TSX-MPV, AMEX-MDM) dropped a big rock in the otherwise stagnant waters of diamond exploration and investment. The company announced that they had recovered a 25.13 c colourless octahedral diamond of exceptional clarity from the Tuzo kimberlite in the Gahcho Kue cluster, Northwest Territories. This diamond was valued at approximately (USD) $17,500/c, or $439,775 total. This is the largest diamond recovered in Canada during an exploration project. 

 

MPV discovered the Gahcho Kue cluster, which lies in the AK property in the Kennady Lake region. It owns 49% of the project, with De Beers Canada as the operator and majority stake holder. The geologic environment of the project is in the southeast Slave craton. The cluster was discovered in 1997 and DeBeers Canada (then Monopros) was quickly brought in as a JV partner where is could earn up to 51% of the project by shouldering a large portion of the costs. DeBeers has since exercised this option. Four main kimberlite bodies comprise the cluster (see map): Tuzo, 5034, Hearne, and Tesla. Tesla is not currently considered to be a resource as its small surface area, 0.4 hectares, is less than one third that of the next largest body: Tuzo at 1.4 hectares.

 

The geology of the three currently economic pipes is varied. 5034 is an irregular body of hypabyssal kimberlite, Hearne is a mix of hypabyssal and diatreme facies kimberlite, and Tuzo is believed to be the deeper part of a diatreme with no root zone found as of yet. These bodies together create a large reserve of ore that has been thoroughly drilled and modeled over the past decade. In a general way the geology could be seen as an intermediate between the Churchill (Stornoway Diamonds & Shear Minerals) and Snap Lake (De Beers Canada) projects that are entirely hypabyssal kimberlite and the Fort a la Corne (Shore Gold & Newmont) project where all of the kimberlite found is pyroclastic or resedimented pyroclastic.

 

The diamond was recovered from LDDH sampling in March of this year. After the sampling was completed the kimberlite was made into a concentrate at De Beers’ Grand Prairie, Alberta facility and then shipped to the GEMDL laboratory in South Africa (also run by De Beers) to recover the remaining diamonds. When this in completed, the diamonds will be sent to the DTC facility in London, U.K., for cleaning and valuation.

 

Of the three main kimberlites, Tuzo is the least developed in terms of sampling. The recent bulk sample was in part an effort to rectify this. 5034 has 8.7 Mt of indicated ore at 1.6 c/t and 4.9 Mt of inferred ore at 1.7 c/t. Hearne has 5.7 Mt of indicated ore at 1.7 c/t and 1.5 Mt of inferred ore at 1.53 c/t. Tuzo, meanwhile only has 10.6 Mt of inferred ore at 1.15 c/t.  MPV and De Beers are trying to remove the uncertainty with this body. For comparative purposes Diavik a few hundred km to the north has about 29.8 Mt of reserves in total at 3.2 c/t (measured+indicated), or 95.36 Mc. Thus far, Gahcho Kue has about 46 Mc (indicated+inferred). Keep in mind that the Diavik mine has unusually high grade. MPV estimates a mine life of about 24 years.

 

In terms of diamond valuation, an independent 2006 report by WWW International Diamond Consultants Ltd. gave (in USD) $101/c for 5034, $54/c for Hearne, and $43/c for Tuzo. The average for all three pipes was $75/c and it was noted that proper cleaning (usually in a hot acid bath) would raise the value of many of the diamonds by up to 10%.

 

It has been over ten years since the discovery at Gahcho Kue. Mining is expected to begin in full by 2012, giving about a fourteen year lag between discovery and mine. Diavik took only ten years in total to begin full capacity mining and Ekati took even less. Following statements for interviews with MPV management, it would seem that they would prefer a faster to-mine plan, but De Beers has preferred a more methodical approach. In light of what happened at Jericho with Tahera, perhaps this might be a more prudent option. Though perhaps De Beers has been focusing the bulk of its attention on their 100% owned Snap Lake and Victor projects in the Northwest Territories and Ontario, respectively.

 

Regardless of the slow timetable set for developing the project, the discovery of this diamond, along with other ones >5 c found in the past few years, has established the potential for large, high quality stones. As diamond price goes up exponentially with carat size, the profit margins for the future mine are looking larger. Now that above average grades, decent diamond values, and large, high quality, high value diamonds have been established at Gahcho Kue the main hurdle is to finance the project to completion as it will be about four years until commercial production. MPV needs about $370 million to fund its 49% share. The current market cap of the company is $280 million. The company has about $1.5 million net in cash and medium-term deposits, and has invested about $65 million in the project overall. While the sale of the diamond announced last week should pay for a few drill holes, in order to keep the full 49% share of the project MPV will undoubtedly require financing. This strategy may run into some resistance as diamonds are not a hot item in the current market and lenders in general are skittish after their collective failure to recognize the risks of sub prime mortgages and ABCP. Also, the fate of the aforementioned last diamond mine to open in the Arctic may be scaring way any potential suitors. Raising more capital by dilution is only a partial solution at this moment considering the vast funds involved. Although the company is not poorly positioned to issuing private placements effectively as its stock price has not suffered anywhere near to the degree that many of its peers have (mainly $4 to $5 over the past year). Another option is to default on their share of the costs and let De Beers’ deep pockets take care of things in return for letting their share slide to 40%. A third option that is being signaled by a strategic review of the company as alluded to in a National Post article last week is that the company may be putting itself up for sale.

 

Regardless of what option the company pursues, the nature of the deposit is likely to reap large rewards for shareholders when interest in the diamond market returns. What remains to be seen is that whether MPV chooses the option that gives the best gain to the shareholders.

 

Disclaimer: The author holds no shares of MPV. This article is based on the author’s personal research and experience. Please perform your own due diligence when investing.

 

Glossary Up!

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Hi Guys,

Just to let you know I finally found a plugin for Wordpress that allows me to run a glossary. Terms with an entry in the glossary will be highlighted blue with a dotted underline. Click on the term to get the definition. Only the first occurrence of a term in a post will be linked. You can also access the all the entries by going to the glossary page titled “Glossary of Geologic Terms”. The link is to the right of “Admin Bio”.

I try to give thorough definitions, so it will be a while until there is a suitable breadth. I will continue to add terms on a regular basis.

If you have any comments/corrections about the glossary, you can put in a comment on this post or email me at kimreport[at]gmail[dot]com.

Happy reading!

Diamond report from New Nadina needs some polish

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Last Monday, New Nadina Explorations Ltd. (TSX.V-NNA), a diamond explorer, published results from a microdiamond assay of core from the optimistically named “Bling” kimberlite in the Lac De Gras region of the Northwest Territories. The Lac De Gras Region was the site of the first significant diamond discoveries in Canada, and is home to the Ekati (BHP Billiton) and Diavik (Rio Tinto and Harry Winston) diamond mines. The Bling kimberlite is located on the Monument Diamond Project in the Blue Pearl Cluster, and is the sixth such body to be discovered there. NNA owns 57.49% of the project. Chris Jennings, famous for his diamond finds in southern Africa and somewhat mixed results Canada, owns 22.11% along with his wife, Jeanne. Archon Minerals Ltd. (TSX.V-ACS), run by Stewart Blusson, co-discoverer of the Ekati Mine with Chuck Fipke, owns the remaining 20.4%.

 

Petrologically, the Bling kimberlite is pyroclastic (diatreme/crater) facies kimberlite, i.e. post-eruption/non-magmatic. The kimberlite was intersected during drilling of a 45º angled core hole from 171 m to 203 m. It contains abundant coarse olivine, pyrope, and chromium-rich diopside, minerals strongly associated with the mantle. But are they associated with diamonds in this case? The large size of many of crystals, up to 2 cm in diameter, indicates that they are possibly not fragments of diamondiferous peridotite xenoliths brought up by the kimberlite, but rather they are related to the kimberlite. Such grains are often termed megacrysts. Ergo, this information does not say much about potential for diamond abundance or lack thereof, although chemical analysis of said megacrysts could (but that is for another article).

 

However, upon later correspondence with Mr. Kivi, the P.Geo. in charge of the project,  it was stated that these large crystals are likely not to be megacrysts as stated above, but rather that they are likely to be from deep mantle origins, ~200 km depth. If this is the cases, then Bling would have sampled a very large column of mantle in the diamond stability field, greatly increasing the chances of entraining diamonds upon the kimberlites ascent. It still remains, however, that chemical analysis of these grains is required to prove things either way.

 

What is interesting, are the 23 mantle xenoliths of lherzolite and harzburgite, incorrectly spelt in the report as “lhertzolite” and “hartzburgite”, respectively. Harzburgite (G10 garnet association), and to a lesser extent lherzolite (G9 garnet association), are the major parent rocks that diamond forms in, prior to ascent to the surface in a kimberlite (most cases) or lamproite (rare cases, e.g. Argyle in Australia). The presence of potential parent rocks for diamonds as xenoliths in a kimberlite is a good indicator for diamonds.

 

The best indicator for diamond in a kimberlite is diamond itself. The concentration of diamond is so low in kimberlite (0.2 g/t is considered a good mining grade as 0.2 g = 1 c) that microscopic (<1 mm) diamond counts are used to extrapolate the larger diamond content of a kimberlite when dealing with small sample sizes, such as drill core. The 120.25 kg sample of core assayed in the report held 67 diamonds greater than 0.106 mm in size. By plotting the microdiamond counts against the size classes, it is possible to extrapolate the distribution of diamonds towards higher sizes (see below; data from the 0.6, 1.18, 1.7, and 2.36 sieves have been omitted to correctly fit the trend line as they were zero values).

 

The power-type trend line here produced a fairly good fit with the data and has an R² value of 0.9897 (1 is perfect). Extrapolating to the 1 mm size class gives ~1.56 diamonds of that size. It is possible to take this estimation a little further. The mass of a roughly spherical diamond 1 mm in diameter is 0.0000092 carats. Thus there are ~0.0000143 carats of diamond in this size class. With respect to diamonds of this size, the grade for the sample is 0.00012 c/t. A full grade estimate could be obtained by repeating this process for every significant (i.e. economic) size class and adding the grades together. Although the grades would become rapidly smaller with increasing diamond size due to the nature of the distribution. The problem with this particular sample is that not enough data exists to get a strong estimate of the diamond population. The sample is not large enough. Small samples are extremely vulnerable to the “nugget effect” were the presence or absence of one or two larger stones can totally skew the numbers away from the actual value. As things stand now, this sample is useful for showing that the Bling kimberlite is diamondiferous to some degree, but inconclusive beyond that. The next step for NNA and its JV partners is to try and obtain a mini-bulk sample in the 10’s of tonnes.

 

Looking at this company as a potential investor with some background in the field, there are a number of troubling issues:

 

1. The insinuation that the presence of megacrysts is indicative of diamond potential. As mentioned above, this is not true. Research suggests that megacrysts are a product of crystallization of the “proto-kimberlite” at depth in the mantle prior to ascent, and not the product of disaggregation on mantle xenoliths, diamondiferous or otherwise. Even with Mr. Kivi’s argument that these are not megacrysts, but indeed deep xenocrysts/xenoliths, the company has yet to publish any evidence either way. If this was the case, then why was this explanation not included in the press release? The company would have likely been better off not mentioning these characteristics of the kimberlite at all until they had determined their exact relevance. These crystals may turn out to be indicative of bling at Bling, or be a red herring.

 

2. The incorrect spelling of geologic terms such as harzburgite and lherzolite. Also using the term “chrome diopside” when in fact chromium-rich or chromian diopside is the proper term. Chrome is what you get when you plate chromium or an alloy of it onto another metal, e.g. steel. Yes, it seems like a small thing, and it may be just the fault of the fellow they hire to run IR, but where is the P.Geo. who is supposed to look over and sign off on each report? If the trained, accredited professional is not catching these obvious mistakes in material released to the public, what about the stuff that is not made public?

 

3. The mediocre results on the monument property. Finding a diamondiferous kimberlite is not terribly news-breaking anymore. Please see an earlier article on Diamonds North regarding this. Many other juniors out there, Stornoway, Peregrine, and Shear Minerals to name a few, have far more established properties. Some of these have established grades and even diamond valuations.

 

Concerning items (1) and (2), it is tempting to regard these as oversights, as Mr. Blusson and Mr. Jennings have years of experience and have both found diamond mines in the past. They also are not part of NNA, but only JV partners on the project. With regards to (3) I do realize that this is a very small junior and is working diligently to find and expand upon potential diamond deposits. It is impressive to note that NNA did manage to get assays back in less than two months from the discovery of the Bling kimberlite. Given the current harsh market for diamond explorers and producers NNA cannot afford to even make small mistakes that would possibly dampen the interest of potential investors. It may be that further work on the Monument Project or one of their other properties will bear fruit, but NNA’s lack of oversight on minor things that are easy to catch could leave some investors eyeing the competency of the people in charge with some suspicion.

 

Disclaimer: The author holds no shares of NNA. This article is based on the personal opinions and experience of the author. Please do your own due diligence when investing.

 

 

 

 

Diamonds Comments(0) June 23, 2008 4:45 pm

Further asset diversification by Marifil Mines

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Marifil Mines reported today that exploration in their new Neuqen Basin property in Argentina has resulted in the discovery of two horizons of potash, one 11 m (upper) and the other 9 m (lower) thick. The grade of the upper horizon grades 5-15% K2O and the lower at 15-20% K2O.  The lower horizon is believed to be of higher grade than that currently being mined nearby at Rio Colorado, owned by Rio Tinto.

For those who have been living under a rock for the past six months, potash has become the new darling of the commodities market. Not to be confused with pot ash, the residue often found after a Deep Purple concert, potash is a variable mix of evaporite minerals: sylvite (KCl), halite (NaCl), and various oxides, carbonates, nitrates, sulfates, and phosphates of alkali metals. Potash’s main use is as a fertilizer to provide better crop yields to plants by enriching soil in elements beneficial to plant growth and resulting in enhanced crop yields. Producers such as Agrium (TSX-AGU) and Potash Corp. (TSX-POT) have seen their shares prices rise substantially in the past few months due to increased demand for food staples such as corn, soybeans, wheat, and other grains. The increased demand has led to the producers being able to negotiate for higher sale prices of potash to major producers such as China. Even juniour potash explorers such as Raytech Metals (TSX.V-RAY) have benefited from the craze. Now Marifil is getting some of the investor love, seeing its share price settle up ~24% by the end to the day to $0.445.

 

Disclaimer: The author holds 1000 shares of Marifil Mnes. This article is based on the personal opinions and experience of the author. Please do your own due diligence when investing.

Base Metals, General, Precious Metals Comments(0) June 16, 2008 7:20 pm

9th International Kimberlite Conference

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For those interested in the more scientific side of the diamond industry, the 9th International Kimberlite Conference is being held this August (10-15) in Frankfurt, Germany. This conference happens once every four years, making it sort of an Olympics for diamond, mantle, and kimberlite research. Only instead of prime specimens of peak athleticism representing their country, you have a range of people attending: from coporate geologists to absent-minded PhDs with questionable fashion sense.

The full link is here: http://www.9ikc.com/ although the 700.00 euro registration fee may put off the casual attendee. Thank heavens for research grants!

 

Diamonds, General Comments(1) June 13, 2008 2:57 pm

The Stornoway without a Dion

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To use an overused comparison in these current market climes, the diamond sector is the Rodney Dangerfield of mining stocks as it “don’t get no respect”. In this way, the diamond juniours are much like the official opposition (for the non-Canadian readers, Stornoway is also the name for the official residence of the leader of the opposition, currently Stephane Dion). To give a more focused discussion of the issue than did a previous article, presented is the case of Stornoway Diamonds (TSX-SWY).

 

The stock has been on a fairly steady decline since this time last year going from ~$1.20/share to about $0.37/share at current. Even the news that acclaimed diamond consultants - WWW International Diamond Consultants Ltd., had upped the estimated valuations for diamonds from the Renard kimberlites (Renard, together with the Lynx dykes, comprises the Foxtrot Property in Central Quebec, and is a 50/50 joint venture with SOQUEM Inc.) only caused a mere blip up from 0.35 to 0.43 that evaporated in the last two weeks.

 

In detail, the report displayed increased values for diamonds from Renard 2 and 3 (from U.S. $109/c to $121/c) and The North Complex Zone of Renard 4 ($69/c to $79/c), increases of 11% and 14% respectively. Since the pullback after the news, the stock has bounced around the mid thirty cent level. So what gives? The predominant idea here is that since last summer, most investors are still very wary of juniours, even ones with established and advance projects such as Foxtrot and, to a lesser extent, Churchill (joint venture with Shear Minerals). For Renard, the pre-feasibility study (NI 43-101 compliant) is due out sometime during this quarter and many investors may be waiting on that. The cost of a road to the potential mine site is one of the most speculated values.

 

Aside from Renard, the other properties in the Foxtrot property hold promise as well. The Lynx series of dykes produced a grade of 1.07 c/t from a 494 t bulk sample. Not enough sampling has been done to allow for a diamond valuation, but the sample did include a gem-quality octahedron weighing in at a whopping 21.53 c (pictured). A minibulk sample from the Hibou dyke, 1.3 km from the Renard bodies (see map), gave a grade of 1.26 c/t from 30.4 t of kimberlite. The largest stone from this sample was a 1.01 c octahedron.

 

After Renard, the next most advanced property is the Churchill project (JV with Shear Minerals), a series of kimberlite dykes located in the Churchill craton in Nunavut. This property was discussed the earlier Arctic Diamonds and Churchill articles.

 

SWY also holds a number of other advanced-level diamond prospects. The most promising of these is the group of eleven kimberlite bodies at Aviat on the Melville Peninsula, North of the aforementioned Churchill project. What really is really interesting about this project lately is the dense media separation results from January 2008 that reported a grade of 1.63 c/t from 20.6 t taken from the AV267 body, and included a 3.64 c stone. AV267 is a sheet-shaped body of macrocrystic hypabyssal kimberlite. Thus far, drilling has delineated AV267 to have an average thickness of 3 m and to extend at least 2000m along  strike and 500 m down dip (dip angle is 8-20 degrees). This is similar to the body at Snap Lake. Kahuna at Churchill is also similar in deposit shape, but it is a vertical sheet instead of the subhorizontal one at Aviat. The project began as a JV with SWY, BHP Billiton, and Hunter Exploration Group (a private firm). Last month SWY acquired BHP’s share of the project, making the split now 90% SWY and 10% Hunter. SWY also have 100% of the marketing rights for any Aviat stones.

 

SWY made news a couple of years back due to its aggressive takeover of Ashton Mining Canada. The main gain in this for SWY was the acquisition of Ashton’s share in the Foxtrot Project. SWY also gets a lot of press coverage because of its CEO, Eira Thomas, a celebrity in the diamond exploration industry due to her part in the discovery of the Diavik mine working for the then-juniour exploration company Aber Diamonds (now Harry Winston Diamonds). Her background and media appeal have made her popular with the press in an industry where companies are usually run by stolid old white guys. The acquisition of Ashton did not only add just properties to the company, but talent as well. Tom McCandless, a renowned and well-published specialist on North American diamonds (read Barren Lands by Kevin Krajick), stayed on with SWY as a consultant after the takeover and is now their chief mineralogist. Matt Manson, formerly VP marketing/technical services & control for Aber (now Harry Winston), came into SWY through the acquisition of Contact Diamond Corporation and is now company president.

 

In spite of these promising results and experienced management, SWY, like most diamond juniours, has been beaten into the ground. With the price at a severe low, investors will either shy away or look at the situation as a buying opportunity. SWY previously has been the focus of a lot of vitriol on investor bulletin boards such as www.stockhouse.com due to its aggressive takeover of Ashton, but shareholder crankiness aside, this is not the cause of the perceived downside.

 

SWY’s number one project is Foxtrot, specifically Renard. As a mine becomes more of a distinct possibility, the need for financing becomes impossible to ignore. Road and electricity access must be established, buildings erected, and equipment purchased. This will likely cost into the hundreds of millions of dollars. As of January 31^st, SWY had just under $18 million in cash and equivalents. Financing by dilution at current prices is unlikely, as management is a significant stockholder and do not want to see their equity devastated. That leaves turning to banks and the like for funds to construct the mine. The “subprime slime” that still sticks to financial institutions makes getting a loan far more difficult now than this time last year. However, considering the experience of the management and the premium nature of the properties, the choices made are likely to be in the best interests of the shareholders.

 

Disclaimer: The author holds 500 shares of SWY that he bought at $0.73/share and has only mildly freaked out about the price dropping to $0.37/share. This article is based on the personal opinions and experiences of the author. Please do your own due diligence when investing.

Diamonds Comments(0) June 4, 2008 6:42 pm

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