DIAMOND PAGE — Diamond exploration picks up steam in 1997

With the Ekati diamond mine in Canada’s Northwest Territories on schedule to begin production in the fall of 1998, diamonds have become an important sub-group of Canadian equity markets.

It has been six years since BHP Diamonds, a unit of Broken Hill Proprietary (BHP-N), and Dia Met Minerals (DMM-T) made their Point Lake diamond discovery at Lac de Gras N.W.T., leading to the largest staking rush in Canadian mining history.

The Ekati diamond mine project, situated approximately 300 km northeast of Yellowknife, is a joint-venture partnership, with BHP Diamonds owning a 51% interest and Dia Met owning a 29% share in the Core block of claims. Those claims cover 450,000 acres and contain the five kimberlite pipes in the current mine development plan. The remaining 20% is split equally between Dia Met founder Charles Fipke and his former prospecting partner, Stewart Blusson.

Ownership of the Buffer claims, which lie outside the Core block, are held 51% by BHP, 31.2% by Blusson, 10% by Fipke and 7.8% by Dia Met.

The current mine plan at Etaki is based on the multiple development of five kimberlite pipes — Panda, Misery, Koala, Sable and Fox — over a span of 17 years. BHP and Dia Met are confident that the mine will have a life of 25 years or more, given that additional pipes show economic potential. The five pipes will be individually mined by open-pit methods, followed by underground mining at Panda and Koala in later years.

Proven and probable reserves total 65.9 million tonnes at an average grade of 1.09 carats per tonne, with a diamond value averaging US$84 per carat.

The Ekati mine will process ore from the pipes at a rate of 9,000 tonnes per day for the first nine years of operation, before expanding to 18,000 tonnes per day over the remaining life of the mine. It is anticipated that the mine will produce about 4 million carats per year, a little less than 4% of total world production.

Dia Met estimates that the average cash operating cost over the 17-year mine life will be in the range of US$22-27 per tonne. Annual revenue of the mine is expected to be somewhere in the neighborhood of $400-500 million throughout the life of the mine. Capital costs of the project are projected at US$700 million.

While no decision has been made on how the rough diamonds will be sold, BHP took its first steps by opening a sales office in Antwerp, Belgium, and signing a marketing consulting agreement with IDH Diamonds.

Exploration drilling during the past year uncovered 23 new kimberlite bodies, raising the number of kimberlites identified on the project to 100.

Sixteen of the new discoveries are situated in the Core block of claims, while the other seven occur in the Buffer zone claims. Four of the 23 kimberlites found this year produced significant microdiamond results. A 66.9-kg drill core sample from pipe 97A returned 31 macrodiamonds and 27 microdiamonds, weighing 0.261 carat in total. (A macro is defined as measuring greater than 0.5 mm in at least one dimension.)

Pipe 97B yielded 102 macros and 167 micros from 407 kg of sample. The stones weighed a total of 0.662 carat. Pipe 97C returned 32 macros and 45 micros, equal to 0.316 carat, from a 144.4-kg sample. A 232-kg sample from pipe 97D yielded 47 macros and 73 micros, equating to 0.26 carat in weight. The partners plan to proceed with 200-tonne, mini-bulk sampling programs early in 1998 on two other pipes that were discovered in 1996 — the Koala North and Bear Tooth kimberlites, which are in the vicinity of the Panda-Koala mine development area. Initial microdiamond analysis of these kimberlites are said to be comparable to those of the Panda and Koala pipes.

A total of 51 macros and 38 micros, weighing 0.555 carat, were recovered from a 268.4-kg core sample of the Koala North pipe, whereas 106 macros and 166 micros, weighing 0.668 carat, were returned from a 376-kg sample taken from the Bear Tooth pipe. As of Oct. 31, 1997, the partners had spent approximately $536 million on the project, including exploration.

The second most advanced diamond project in the territory is the Diavik project, 30 km southeast of the Ekati mine project. Ownership of Diavik is held 60% by Diavik Diamond Mines, a division of Rio Tinto (RTP-N), and 40% by Aber Resources (ABZ-T). The partners recently completed a 2-year, $80-million prefeasibility study on four diamond-bearing kimberlite pipes — A-154 South, A-418, A-154 North and A-21 — that together constitute a resource estimated at 37.3 million tonnes. The four pipes lie beneath Lac de Gras in shallow waters close to shore. A project description is expected to be filed with the government in early 1998, which will trigger an environmental assessment review process.

A final feasibility study will also begin in the new year to determine the capital costs of building a mine and the schedule for development. All four pipes have undergone mini-bulk sampling by large diameter drilling to establish an estimated grade, and two of the pipes, A-154 South and A-418, have undergone underground bulk sampling to establish an estimated value of the diamonds they hold. The A-154 South pipe hosts a measured resource of 11.4 million tonnes grading 4.6 carats per tonne, with an average value of US$63 per carat.

Pipe A-418 is estimated to contain a measured resource of 8.9 million tonnes grading 3.8 carats per tonne, with an estimated carat value of US$56. Large diameter drilling into pipes A-154 North and A-21 yielded 156 carats and 90 carats, respectively. Although these parcels of diamonds are too small to hold much significance, preliminary valuations put the stones at US$35 per carat for A-154 North and US$38 per carat for A-21.

The A-154 North pipe contains an indicated and inferred resource of 11.5 million tonnes grading 1.9 carats per tonne, whereas pipe A-21 is estimated at 5.5 million tonnes grading 2.7 carats per tonne. The exploration budget for Diavik in 1997, excluding the prefeasibility work, was $3.1 million.

Exploration drilling during the year uncovered three new kimberlite pipes — A-11 North, A-840 and T-107. To date, 50 kimberlite pipes have been discovered on the project, 20 of which are diamondiferous. A-11 North is a land-based pipe, situated 8 km southeast of the A-418 and A-154 South pipes.

A 452.2-kg sample recovered from three holes into thepipe yielded 117 macros and 206 micros. Further results from A-11 North are pending, as are results from the A-840 and T-107 discoveries.

A new diamondiferous pipe was also found along the property boundary with the Ekati mine project. The pipe appears to be largely on the BHP-Dia Met side.

The exploration budget at Diavik is increasing to $9 million in 1998, including $4.3 million of additional drilling on previously identified pipes, other than the four main pipes. Large diameter drilling of the A-11 North pipe is planned, along with drilling of anomalies defined from a detailed 1997 airborne geophysical survey.

At the Jericho project, 20 km north of the Lupin gold mine, Lytton Minerals (LTL-T) and partner New Indigo Resources (NOR-A) processed a 9,400-tonne underground bulk sample, representing all phases of the land-based Jericho JD/OD-1 pipe, recovering 10,539 carats of diamonds. The parcel averaged US$60 per carat.

Although resource estimates are not available for the JD/OD-1 pipe, phases within the pipe are said to vary in grade from 0.3 to 1.96 carats per tonne and exhibit broadly consistent size distributions. The pipe averages a grade of 1.18 carats per tonne. The partners note that an unusually high number of larger stones in the underground sample is an encouraging feature, which could materially influence future valuations. The largest stone recovered weighs just over 40 carats and the largest gem-quality diamond is 23.89 carats.

A preliminary scoping study, based on the initial mining of higher-grade phases, suggests the JD/OD-1 pipe could support a 1,650-tonne-per-day mine, with a capital cost projected at US$50 million. A prefeasibility study is being conducted and is expected to be completed soon.

The JD/OD-1 kimberlite is one
of three diamond-bearing pipes found to date on the 405,000-ha package of ground held on a 50-50 basis by Lytton and New Indigo. The discovery of the third pipe, JD/OD-3, was made in the fall of 1996 under a small lake, 7 km west of the two land-based pipes. A 10.53-tonne, mini-bulk drill sample of JD/OD-3 yielded 7.34 carats of diamonds, for a preliminary grade of 0.697 carat per tonne. Delineation drilling indicates the pipe contains a resource of 10.5 million tonnes to a depth of 350 metres.

A total of 14 indicator mineral trains have been identified in the vicinity of the Jericho pipes and will be followed up with further exploration in 1998.

At the beginning of 1997, Kennecott Canada Exploration entered into a joint venture option agreement with Lytton and New Indigo to earn up to a 50% interest in certain mineral claims in the N.W.T. The claim package, which covers more than 1.2 million ha, includes Lytton’s wholly-owned ICE property and the Ranch Lake and T31 diamondiferous kimberlite pipes. The 405,000-ha Jericho project is not included in this joint venture. Kennecott, a unit of Rio Tinto, spent $5.2 million in 1997 completing extensive airborne and ground geophysical surveys, mapping, till sampling and diamond drilling several selected targets. A new diamondiferous kimberlite, designated Ll-201, was discovered on the ICE claims, 90 metres west of the T-31 pipe. A 281.1-kg core sample returned 60 stones greater than 0.15 carat. Kennecott has budgeted $5 million for exploration in 1998.

The boards of Lytton and New Indigo announced their intentions to amalgamate the two companies, but the terms of the proposed deal have yet to be determined.

Ashton Mining of Canada (ACA-T) spent $2.1 million in exploration on the JC and Roundrock properties held on a 50-50 basis by Lytton and Pure Gold Minerals (PUG-T), 120 km north of Lac de Gras. Ashton, which holds an option to earn a 51% interest in the properties, completed additional drilling on and around the Aquila kimberlite fissure. In 1996, three drill holes intersected the Aquila system along a strike length of 300 metres. A total of 3 macros and 16 micros were recovered from 175 kg of core. Results from the 1997 season are pending.

Shortly after acquiring an option to earn up to a 60% interest in the AK-CJ properties, Monopros showed its expertise at finding kimberlites by uncovering three new pipes — Tesla, Tuzo and Hearne — while drill testing geophysical targets in the vicinity of the 5034 kimberlite. Monopros is the Canadian subsidiary of De Beers Consolidated Mines (DBRS-Q). The claim blocks are 100 km east of Lac de Gras, and are currently held 90% by Mountain Province Mining (MPV-V) and 10% by Camphor Ventures (CFV-V). In November, Mountain Province boosted its interest by merging with 444965 B.C., a wholly-owned subsidiary of Glenmore Highlands (GMH-A), which held 40% of the AK/CJ properties. Glenmore now owns a 40.4% share of Mountain Province. The Hearne pipe is 1.1 km southwest of the 5034 pipe, Tuzo is 700 metres northeast of 5034 and Tesla is 1.8 km northwest of 5034. The Tuzo pipe has yielded 697 diamonds from a total of 278 kg of core. Fifty-five of the diamonds were larger than a 0.5-by-0.5-mm screen size; the largest diamond recovered was 1.56 carats in weight, whereas 20 diamonds were larger than 0.01 carat.

The Hearne pipe returned 763 stones from 300 kg of drill core. A total of 88 diamonds were greater than the 0.5-by-0.5-mm screen size, and 10 of those stones were larger than a 2-by-2-mm screen size. The five largest diamonds weighed an aggregate of 0.92 carat, and there were 39 diamonds greater than 0.01 carat.

The Tesla pipe has yielded 109 diamonds from a 66-kg core sample. Eight of the diamonds were larger than the 0.5-by-0.5-mm screen size.

The 5034 pipe contains a drill-indicated resource of 20 million tonnes to a depth of 350 metres. An evaluation by De Beers on a 164-carat parcel of diamonds (using a lower cutoff recovery size of 1.65 mm) averaged US$55 per carat. The grade of those diamonds is 1.5 carats per tonne. Delineation drilling of all four pipes is expected to begin by mid-January. At the Camsell Lake diamond project, 100 km south of Lac de Gras, Winspear Resources (wsp-v) carried out extensive winter and summer exploration programs trying to locate the source of diamond-bearing kimberlite boulders discovered in 1996 in the Snap Lake area. Airborne and ground geophysics were followed by a 5,000-metre drilling program, which began in March. A total of 13 kimberlite dyke intersections, ranging up to 3.1 metres in thickness, were encountered in a 1-sq.-km area on the west side of Snap Lake. A total of 149 macros and 252 micros were recovered from a 137.1-kg aggregate sample. Twenty-five of the macros exceeded 1 mm in at least one dimension, with the largest diamond measuring 1.79 mm.

The majority of the recovered diamonds were white and yellow, with a small percentage of green, amber and pink “fancy” colored stones. About 87% of the diamonds were described as transparent. On the east side of Snap Lake, two holes, drilled 55 metres apart, pulled 107-and-98.5-metre thick intervals of complex kimberlite breccia from anomaly CL 186. The kimberlite was discovered under about 100 metres of granite.

One sample from the upper portion of the first hole yielded two macros and nine micros from 39-kg of material. A second sample from the lower portion of the hole returned 20 macros and 36 micros from 43 kg of core.

In the second hole, no diamonds were recovered from an upper sample weighing 36.4 kg, but, lower down in the hole, a 35.2-kg sample yielded 20 macros and 38 micros. Selective sampling of both holes excluded large fragments of granitic rock.

A 2,200-metre summer drilling program failed to find the source of the CL 186 kimberlite and it is now inferred that the vent area is beneath Snap Lake. During the summer, a new train of kimberlite boulders measuring 1 km long and 175 metres wide was discovered on the south shore of Snap Lake. A total of 259 kg of varying types of kimberlite was collected, returning 169 macros and 325 micros. Eighteen of the diamonds measured greater than 1 mm, four of the stones were greater than 2 mm and three were greater than 3 mm.

The largest stone measured 3.47 mm in its longest dimension.

A significant winter/spring exploration program in the Snap Lake area is expected to begin in late January or early February.

The Camsell Lake project is a joint venture held 57.3% by Winspear and 42.7% by Aber Resources.

Northeast of Camsell Lake, SouthernEra Resources (SUF-T) exposed weathered clay kimberlite during detailed follow-up sampling on a strong indicator mineral train at the Back Lake project. A 6-hole drilling program, however, determined that there was no pipe. Four of the six holes intersected kimberlite dykes ranging in width from 0.1 to 1.5 metres. Further test-pitting up-ice of the Yuri find suggests Munn Lake is a likely source.

A fall surface sampling program on the kimberlite exposure recovered 62 macros and 164 micros from a 666-kg sample of weathered, green clay kimberlite. The largest stone weighed 0.12 carat and five of the diamonds were 0.01 carat or greater.

The Back Lake project is held 70% by SouthernEra and 19.38% by Kalahari Resources (KLA-V). Island-Arc Resources (IAR-V) recently concluded agreements with six junior companies to acquire their respective interests, such that it now holds a 10.62% carried interest in the project. Ground geophysical surveys and sediment sampling of Munn Lake are being carried out in preparation for drilling.