Diamond play recovers from core contamination

The credibility of the Lac de Gras diamond play suffered a serious blow recently when the Aber-Commonwealth-SouthernEra joint venture mistook synthetic drill bit diamonds for natural stones derived from kimberlite, but analysts believe the wound will heal.

“(The) announcement . . . knocked a great deal of stuffing out of the Northwest Territories diamond play,” said Cannacord Capital’s John Hainey. “But while credibility has been damaged, the play is by no means dead.” Shares of the main players have already recovered, with Aber Resources (TSE) settling at the $2.30 level in a 52-week range of 30 cents-$2.64. The fiasco began Nov. 12, when the joint venture partners announced that they had encountered five microdiamonds — three of which were rare yellow diamonds — in core from the second kimberlite discovered on their Tenby claims near Lac de Gras. Kennecott Canada has an option on the ground. Although the companies warned that the 8-kg samples were much too small to provide any reliable statistical information, shares of the area players soared to new heights, with SouthernEra Resources (TSE) almost doubling to $4.25. (T.N.M., Nov. 23/92).

But suspicions were aroused when several more yellow diamonds showed up in the samples. SouthernEra President Christopher Jennings had the drill bit shipped to Ontario and examined. Lakefield Research later confirmed that although two white microdiamonds and one additional green diamond were natural stones derived from the core, the yellow diamonds had originated from the drill bit.

Led by Dia Met Minerals (TSE), shares of the main players at Lac de Gras went into a tailspin. Dia Met slid to $23 from $31.

“It doesn’t matter if you have three microdiamonds, or five microdiamonds, you still don’t have much,” said one analyst who suggested that the market had seriously overreacted to both announcements.

Investors appear to be shrugging off the bad news. Dia Met recently touched a new high of $32.50 on speculation that it may have some bullish results to report shortly. Dia Met’s TSE listing application contains a previously unreported “resource” estimate of 80 million tons at 63 carats per hundred tons for the Point Lake pipe.

“Dia Met is the flagship play to which all the speculation is ultimately pegged,” said Pacific International’s John Kaiser to explain Dia Met’s market gyrations in the wake of the Aber announcement. “The pillar of the play is also its Achilles’ heel.”

Although many called the error “inexcusable,” analysts dismiss the theory that it was a deliberate stunt designed to create a money-making opportunity for insiders.

Ironically, Jennings told The Northern Miner just last month that diamond explorers should always be on the lookout for drill bit contamination when samples are taken with a diamond drill (T.N.M., Nov. 2/92).

The Dia Met-BHP joint venture used a reverse circulation drill, which cuts the rock by percussion rather than abrasion (producing chips rather than core) to drill 37 holes on its Point Lake pipe.

A tungsten-carbide bit can also be used, but Aber President Gren Thomas says this type of bit has to be changed much more frequently.

“There’s still a lot of talk about the best way of doing it,” says Thomas, who admits that he is still on the diamond learning curve.

In other diamond developments in the Northwest Territories:

— In order to finance exploration on its Jolly Lake block of claims south of Lac de Gras, Garden Lake Resources (VSE) intends to complete a private placement of up to 1.1 million special warrants, each priced at 35 cents. Each special warrant entitles the holder to receive one common share and one share-purchase warrant within 12 months.

— Mill City Gold Mining (ASE) has agreed to earn a 50% interest in 152,506 acres held by Tanqueray Resources (ASE) and Fibre-Klad Industries by spending $4 million on exploration by Dec. 31, 1995. Under the agreement, Mill City must also pay Tanqueray $150,000 by the end of November and start drilling by March 31, 1993.

— Pure Gold Resources (TSE) has sold 40% of its interest in claims covering a total of 350,000 acres in the Humpy Lake (80%) and Clinton Lake (50%) areas to Riva Petroleum (VSE) and Loumic Resources (VSE), which will each pay $225,000. Winslow Gold (VSE) owns the remaining interest in the claims and Ashton Mining of Australia can earn a 51% interest by providing technical expertise and taking a 20-ton bulk sample on each kimberlite identified. — Tyler Resources (TSE) has staked an additional 355,100 acres southeast of its Crystal property, increasing its land position to 563,100 acres. In Alberta:

— Golden Marlin Resources (VSE) has taken an option on the 23,000-acre Lucky 7 diamond property near Legend in southern Alberta, where two diamonds weighing 0.14 carats and 0.17 carats were discovered in the late 1980s. Limited abrasion on the surface of the diamonds suggests a local source, the company says.

— Takla Star Resources (ASE) says it has granted a right of first refusal to an international mining company to explore the junior’s 172,800-acre application block in the vicinity of Legend. In return for first refusal, the unidentified company will collect and process till samples for indicator minerals and diamonds.

In Manitoba and Ontario

— Subject to regulatory approval, three companies controlled by R.S. Middleton — Cross Lake Minerals (VSE), East West Resource (VSE) and Golden Dragon Resources (VSE) — have acquired properties near Kirkland Lake, Ont., by paying staking costs and issuing shares.

— Teryl Resources (VSE) has agreed in principle to earn a 25% interest in nearly one million acres in northern Ontario, close to the Manitoba border. Previous work by property holders Consolidated Newgate Resources (VSE) and Central Geophysics outlined nine potential kimberlites on the property. Teryl has also acquired an additional block of claims in the Lac de Gras area. In Saskatchewan:

— Guardian Communication Industries (VSE) has purchased all the outstanding shares of Guardian Resource, a private company. Guardian Resource holds interests of 20-60% in seven diamond properties in the Forte a la Corne, Sturgeon Lake and Carrot River areas of central Saskatchewan. — Rhonda Mining (ASE) has increased its land position in the Fort a la Corne area to 400,000 acres by acquiring an option to earn a 70% interest in four properties totalling 5,900 acres from a private group of companies led by Surf Oil. The properties adjoin the Cameco-Monopros-Uranerz joint venture, where a bulk sample has just been completed.

Overseas:

— Canadian Overseas Exploration (VSE) received approval from the Canadian International Development Agency (CIDA) for a $485,000 grant to finance a feasibility study on the company’s offshore diamond deposit in Namibia. Dia Met executives Charles Fipke, James Eccott and George Poling have decided not to join Canadian Overseas’ board of directors.