KIM Report

Diamonds North works to turn high diamond counts into high share price

Posted by David

A rather vocal minority of Diamonds North (DDN) shareholders responded quite negatively to earlier criticisms of the company in regards to discussion on whether or not it was reading too much into rather high diamond counts from its Amaruk property.

 

Having attended the CEO’s (Mark Kolebaba) presentation to a sparse crowd at the 2008 Toronto Resource Investment Conference (Wake?) October 4th, it appears that DDN is not resting on its laurels and is attempting to make something of the encouraging results seen thus far from its arctic properties. Mr. Kolebaba gave a strong presentation outlining the importance of further diamond exploration in a market were the last significant deposit to start producing was Diavik in 2001 (no, Jericho does not count).

 

DDN’s main property, Amaruk, consists of ~2 million acres in Nunavut containing 29 kimberlite bodies. Many more geophysical targets remain to be drilled for kimberlite. Garnets from till samples in the region show strong G10 and G9 geochemical signatures (strong indicator minerals for peridotitic diamonds), with a minor eclogitic garnet component in terms of chromium and calcium contents.

 

One major criticism of the news release last March regarding the ~7 diamonds/kg result was that only 81.75 kg of rock from the Tuktu-1 kimberlite was sampled. Such a small sample is easily skewed to economic or uneconomic numbers by the addition or subtraction of a few carats, respectively. Mr. Kolebaba’s company is working to firm up the numbers for Amaruk by taking mini-bulk samples of 20 t from Tuktu-1, -2, and -3, and 15 t from the Qavvik body.

 

Larger sample sizes lower uncertainty and are especially important to diamond mining as even economic pipes have low absolute concentrations of diamond (well below 1% by weight). These samples have a higher chance of capturing economically viable macrodiamonds, rather than just the microdiamonds found do far. The mini-bulk sample is an important step as the Amaruk property moves from the reconnaissance stage towards the evaluation stage.

 

Interestingly, DDN’s share price has not been pounded down as badly as some other diamond juniors. It closed Friday at $0.40 down only 50% from its traditional support level at $0.80. Part of this may be due to loyal investor support, and the other part is that it has stumbled upon a potential base metals deposit also on the Amaruk property known as the Tunerq prospect. Rather than put it aside or option it out, DDN has decided to run with the prospect. Grades of up to 2.49 % Ni, 0.56% Cu, and 0.05% Co have been encountered in sulfides during drilling. An opportunistic and adaptable attitude by management should help keep the company’s head above water in a market that currently does not favour any sector, let alone diamonds.

 

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

Marifil Mines Ltd. holds diverse assets in Argentina

Posted by David

The strategy of Marifil Mines Ltd. (TSX.V-MFM) seems similar to that of Franco-Nevada (TSX-FNV): Prospect out a property with good potential, get in a larger joint venture partner to shoulder the development costs, and then collect royalties after production commences. MFM is focused solely in Argentina, where is has a variety of resources

 

In various Argentine provinces MFM is prospecting for Au, Ag, In (indium), Pb, Zn, Mo, Cu, cement-grade limestone, Ni, Co, PGM, U, and oil/natural gas. Activities are in 18 properties across 7 provinces. This company is no one-trick pony.

 

Having thrown off the Peronist junta in 1983 in place of a democratic system and surviving the economic crises of the 1990s, Argentina has been stable politically and economically since 2002. Although Argentina is on good relations with other South American nations, it does not seem to have caught the socialist nationalization trend of so many of its neighbours, such as Venezuela, Ecuador, or Bolivia, that has put a halt to mineral exploration in those countries.

 

The current share price is hovering around $0.40, but it had a recent pop to $0.89 a couple of months back due to results from one of its PGM projects that is a JV with Castillian Resources (TSX.V-CT). The project centers on the historic Las Aguilas Mine and neighbouring areas that the layered ultramafic complex extends to. Values of 0.61 g/t to 2.10 g/t Pt+Pd were found over significant widths (7 to 14.68 m) and zones up to 5.66 g/t Pt were found in smaller zones (~1 m). In terms of base metals, grab samples on the property have returned values of up to 6.71% Cu, 2.21% Ni, and 0.21% Co. Following the company strategy, CT is earning an interest in the Las Aguilas Ni-Cu-PGM project from MFM.

 

Aside from PGM, the In deposits are of particular interest as the metal is used in LCD screens. Old-fashioned CRT monitors and TVs are longer being produced and the increase in LCD screen production has resulted in a rise in In prices (see image below).

 

Current In prices average between $800/kg and $900/kg. The demand caused by the LCD market for In is supplemented by other uses in the chemical and electronics industries. In commonly occurs in sphalerite ((Zn,Fe)S) by replacing iron or zinc. In grades of up to 0.5 kg/t over 4.5 m have been found in core from the San Roque property (epithermal Au-Ag-Zn-Pb-In breccia vein deposit).

 

MFM has another JV with ATW Venture Corp. (TSX.V-ATW) on the Amarillo epithermal Au-Ag and Cu-Au porphyry deposit. Although sampling has recently started on this project, early grab samples have returned values of up to 2251 g/t Au (65.28 oz/t) from a 10 cm wide vein. This property is located in the same gold belt as Barrick’s (TSX-ABX) Veladero and Pascua Llama deposits. The geology is also similar to that of the Newmont-Buenaventura (NYSE-BVN) Yanacocha Mine in Peru. ATW can earn up to 70% interest in the property over 5 years in return for investing resources in the project. What is interesting about this deposit is that in addition to the potential for high grade Au and Ag, there is also the potential for high tonnage as well as most porphyry-type deposits are quite large in volume, being the left-over hydrothermal systems associated with volcanism at convergent oceanic-continental boundaries.

 

MFM has two non-metal projects: Mina El Carmen (oil/gas) and Punta Colorado (limestone). Although these commodities are not their specialty, the intent of the company as expressed to me by a company representative at last March’s PDAC is to sell them or enter into a JV in order to begin production and use the proceeds to fund their core metals exploration. Due to the nature of the deposit, MFM management believes that it will be much easier to exploit (particularly the limestone) or sell off one or both of these assets than any of the metal properties. They also believe that in the long run, many of the metal assets will prove to be more lucrative than the non-metal ones.

 

MFM certainly has a diverse set of properties with much potential. Their main challenge right now is to better define the deposits that have returned such promising values: Amarillo, Las Aguilas, and San Roque. To do so, this means coming up with enough cash for the drills. This may be difficult as MFM (using 2007 annual financials) has only about $1,000,000 (CAD) in cash and equivalents in the bank, and about $380,000 in debt. Their burn rate for 2007 was about $500,000, so they should probably be good until the end of the year, even if they ramp up spending on drilling a little. Using their FNV-inspired plan they should be able to mitigate these costs as JV partners take on a higher share as operators.

 

It seems that with their sound corporate strategy, diverse holdings, and liquid properties, MFM is poised to continue returning strong results from Argentina in spite of economic pressures on juniour explorers.

 

Disclaimer: The Author holds 1000 shares of Marifil Mines. This article is intended for entertainment purposes only and is based on the author’s personal opinion and experience. Investors are responsible for their own due diligence when investing.