KIM Report

Different Types of Diamonds at Fort à la Corne

Posted by David

Early last month, Shore Gold (SGF) announced that a high proportion (26%) of diamonds >2.7 c retrieved from the underground bulk sample at its 100% owned Star kimberlite in Saskatchewan are type IIa. This is a category of diamond that is typical of many “large special” diamonds >10.8 carats in size.

Diamond Types

In terms of impurities in their crystal structure, diamond can substitute nitrogen (N), boron (B), and/or hydrogen (H) for carbon. Nitrogen is the most abundant and well-studied impurity and can range from concentrations of 0 to >10,000 ppm (~1%). Diamonds with significant nitrogen (>10 ppm) are termed Type I and those without are Type II. N-bearing diamonds are further categorized into those where the substituting N is organized as single atoms (Type Ib) or as aggregates of more than one atom (Type Ia). These aggregates are classified into paired N atoms (Type IaA) or quartets (Type IaB), or a mix of both (Type IaAB).

Diamonds that are relatively free of N are Type II. Those with no N and some B are Type IIb. Type IIa diamonds are more common and have no N or B. Type Ib and IIb diamonds are relatively rare. Type Ia diamonds are the most common.

How Diamond Types Are Determined

How impurities such as nitrogen are arranged in a diamond can be determined in a non-destructive manner using Fourier-transform infra-Red (FTIR) spectroscopy. Simply, light of a lower energy than visible light (infra-red) is shone through the diamond. By measuring the exact amount of light of a given energy that comes out the other side of the diamond (i.e. how much light is absorbed), it is possible to learn things about the diamond’s molecular structure. For example, how much nitrogen is in the diamond, and if it is in atomic pairs, or quartets. Fourier-transform is a mathematical and instrumental technique applied to infrared spectrometry to speed up analyses.

Issues With The Report’s Interpretation

In their news release, SGF refers to the Letšeng-la-Terae (Letšeng) mine in Lesotho (operated by Gem Diamonds, LSE-GEMD). This mine is considered quite unique as its low grade – <0.04 c/t, but has diamonds impressive quality and size. Average diamond value for this mine is >US$2000/c. This means a revenue of ~$80/t (2008 values).

However, the report’s suggestion that Type IIa equates to higher value stones cannot be considered absolute fact. This is because the mine they are comparing their diamonds to – Letšeng, is an anomaly in terms of its diamond population. While it is possible that with further valuation of parcels for SGF pipes a higher valuation could be realized, the current one is only about 10% (~$225/c) of Letšeng’s.

The diamonds shown by SGF in the full report (see above image for an example)- while large, are typically yellow-brown and some appear to contain large inclusions (internal cracks or non-diamond minerals). The report goes on to compare Letšeng and Star diamonds in terms of size class and % Type IIa. While Letšeng does show a marked increase in % Type IIa with increasing size, Star shows only a marginal increase, if at all.

The FTIR report commissioned by SGF also makes an error when referring to the trend of increasing percentage of Type IIa diamonds with increasing carat size for Star as comparable to that of Letšeng. The trends for each pipe are in fact rather different. Letšeng shows a significant increase of the proportion of Type IIa diamonds with size, whereas Star shows only a marginal increase (see plot below).

The SGF report states that the above figure “shows explicity that the abundance of Type II diamonds increases with increasing diamond size.” This statement is misleading as it is really only true for Letšeng diamonds. The academic study on Letšeng diamonds that SGF references for this report was based on less than 500 diamond samples (large stones of value being hard to obtain even for non-destructive studies). This relatively small number means that care must be taken when applying this study on a small number of diamonds from one kimberlite to the entire potential production of another. Granted, not that many large diamonds have been made available for such studies, but such over-reaching statements should not be made.

While the results of the report are interesting, and parallels can be made with the academic paper on Letšeng, there does not appear to be much evidence at this point for increased financial prospects of the Star project in terms of diamond type. Star still has one tenth the average diamond valuation of Letšeng without having close to ten times the grade. Though this does not in any way forestall a diamond mine in Saskatchewan, far better numbers have to come out of the Fort à la Corne area kimberlites for it to approach the level of Letšeng.

Disclaimer: The author does not hold shares of any company mentioned in this article. Relevant comments are welcome and encouraged. Spam comments will be deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com

Kimberlites and Diamonds of Western Canada

Posted by David

This year’s GeoCanada conference and related workshops saw some attention to diamonds and kimberlites. Specifically those located in the western Canadian sedimentary basin (WCSB), covering Alberta and Saskatchewan.

The two main kimberlite clusters in this region are the well-known Fort a la Corne (FalC), and the lesser known Buffalo Head Hills (BHH) occurrences. The former cluster is in Saskatchewan and has been the focus of a major JV between Shore Gold (operator) and Newmont, the background of which was discussed in previous KIM Report posts. On the technical aspect of things, Shore Gold has done a lot of work in characterizing the complex structure of their two most economic kimberlite pipes: Orion South and Star (both are ~100 Ma). These pipes are composed of multiple units each formed during a separate volcanic eruption millions of years ago on the margins of an ancient shallow inland sea that covered most of what is today called the Great Plains. There are at least five  main units: Pense, Viking, Early Joli Fou, Late Joli Fou, and Cantuar (see the 3D model of the Star kimberlite below: different colours represent different petrological units). These units each erupted at a different time over many thousand of years, and differ in petrology, diamond grade and diamond size distribution. To further complicate things, these eruptions occurred over a timespan during which the inland sea was alternately expanding and contracting. The effect of these sedimentary processes (e.g. erosion, transportation, deposition) on the erupted kimberlite material led to the concentration of diamonds in some rock units and the removal of diamonds from others.

The other less-studied cluster is the ~65-85 Ma BHH in Alberta. Both barren and diamond-bearing pipes occur, also with variable geology and diamond grades as with the FalC pipes, although the extent of the complexity is unknown. The highest grade pulled from a BHH sample so far is close to 0.9 c/t (K252). Most of the pipes are a JV between Canterra Minerals Corporation (TSX.V-CTM; 28.5%, operator), Shore Gold (28.5%), and EnCana Corporation (43%). Shore Gold and Canterra each carry 50% of the operating costs. Canterra is the result of the business arrangement between Diamondex Resources Ltd. (TSX.V-DSP) and Triex Minerals Corporation (TSX.V-TKM) in 2009. Diamondex and Shore Gold bought their shares in a deal with Stornoway Diamond Corp. back in 2007. They later purchased another 12% from Burnstone Ventures Inc. (CNSX-BVE, formerly Pure Diamonds). A smaller subset of diamond-bearing pipes has been discovered by Grizzly Discoveries Inc. (TSX.V-GZD). These kimberlites: BE-02 and BE-03, are in the southeast region of the BHH cluster, previously thought to be barren. Grizzly also owns interest in a couple of much smaller diamond plays to the ENE in the Birch Mountains area of Alberta, as does Shear Minerals.

A couple of other companies have diamond interests in the WCSB: Vaaldiam Mining Inc. (TSX-VAA – Candle Lake, Saskatchewan) and Forest Gate Energy (TSX.V-FGE, formerly Forest Gate Resources – Fort a la Corne, Saskatchewan). However, activity on these properties has been fairly light (see map image of kimberlites in the WCSB below).

Both the BHH and FalC clusters were initially discovered by activities relating to energy exploration – petroleum and uranium, respectively. The BHH pipes were discovered by re-evaluating aeromagnetic survey maps that had classified the anomalies caused by the pipes to be well-heads for the oil fields that clutter the region. Some diamonds from these pipes have even been found to be coated with petroleum when recovered. The FalC cluster was found during aeromagnetic surveys. These pipes are located under 80-100 m of gravel, sand, and clay.

Though in comparison to other diamond mining regions (e.g. the Northwest Territories or the Otish Mountains in Quebec) current grade numbers are rather low, diamond valuations that do exist (only from FalC at this point) are higher than average for Canadian kimberlites. Access to infrastructure is also better, particularly when compared to Arctic kimberlites. This bolsters the revenue $/t kimberlite coming from those pipes. The main hurdle with this is the geological complexity of the FalC (and to a lesser extent BHH). Overcoming this problem has taken Shore Gold and the previous owners of the FalC pipes the better part of 20 years to overcome with exhaustive drilling and geophysics. The amount of detail given in recent reports indicates that their geology and diamond characteristics are becoming less vague, at least for the Orion South and Star bodies. Now having more information where and how rich the higher-grade zones are at Orion and Star, have allowed Shore Gold (and Newmont) to almost finalize their mine plan. Mr. George Read, Shore Gold’s senior VP exploration and development, confidently expects a full net profit after all costs and taxes of ~$25/t (CAN) ore from the project as it stands. The 50+ other kimberlite pipes remaining at FalC, along with those at BHH represent possible future resources for Shore Gold and its partners beyond the two currently gearing up for production.

On an ending note, Shore Gold reported re-valuation (April 2010) of the diamond parcels it had originally sent out and had valuated in March 2008. Price increases (in US$/c) since then are 10-20% higher for every parcel. What to keep in mind here is how the American dollar (what the revenues come in) fares against the Canadian dollar (what the costs come in). Over the past two years, the exchange rate has fluctuated from about $1 (US) buying $0.98 (CAN) to $1.30 (CAN). How much of that price increase is due to supply/demand and not currency adjustment is uncertain.

Disclaimer: The author holds shares of SWY, SRM, and FGE. Relevant comments are welcome and encouraged. Spam comments will be not posted and deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com