Experts’ evaluation key factor in assessing Lac de Gras play

Investors speculating on the Lac de Gras diamond play have been placed on tenterhooks again while experts assess the value of gems recovered from a kimberlite pipe underneath Point Lake, 200 miles northeast of Yellowknife, N.W.T.

Partners Dia Met Minerals (VSE) and BHP-Utah Mines recovered the diamonds, weighing collectively at least 90 carats, last month. A few of the stones fall into the 1-3-carat range, while about 25% are gem quality. Since the value of a diamond depends on several different factors, including clarity, color and size, the assessment will go a long way toward determining the pipe’s potential to host an economic deposit. A Dia Met spokesman said the results should be available by mid-June.

“The value of the gems can range from US$10 per carat to US$18,000 per carat, with about 2,400 grade classifications in between,” says John Kaiser, an analyst with Pacific International Securities. “Values of US$200 or better per carat would be greeted as strong evidence that Lac de Gras may indeed be a diamond field that is comparable to those of South Africa and Siberia, and would kick off an unprecedented buying frenzy.”

In 1991, South Africa produced 8.5 million carats with a total value of about US$893 million. Russia produced 12 million carats valued at more than US$1.1 billion.

At least 25 public companies are currently involved in the Northwest Territories play that has spread as far north as the Lupin gold mine. Using landholding size and market value per acre (the lower the better), Kaiser has chosen Aber Resources (TSE), SouthernEra Resources (TSE), Dentonia Resources (VSE), Kettle River Resources (VSE), Lytton Minerals (TSE) and Tanqueray Resources (ASE) as “the best buys for speculative upside potential.” Aber recently completed two option agreements with Kennecott Canada. The first allows Kennecott to earn a 60% interest in Aber’s Lac de Gras claims by spending $10 million on exploration. The second calls for Aber to earn a 50% interest in Kennecott’s High Lake polymetallic deposit about 25 miles from the Arctic coast.

In other Lac de Gras developments, Pure Gold Resources (TSE) has reached an agreement-in-principle to acquire a second block of claims for $200,000. Aber will acquire the remaining 25%.

If the results of the diamond evaluation are favorable, sources say the next logical step for the BHP-Dia Met joint venture would be to take a representative bulk sample of up to 10,000 tons. Because the underwater pipe can be accessed only by driving a ramp or draining the lake, the work would require a large capital outlay.

As part of its option agreement with Dia Met, BHP is required to spend $2 million exploring the Lac de Gras ground each year. In order to become vested with a 51% interest, BHP must also fund a feasibility study and arrange mine financing of up to $500 million.

Surface area and grade of selected kimberlites

Facies Surface area Grade

Country Pipe (Zone) (ha) ct/100 t (ppm) % Gems

South Africa Kimberley pipe 3.7 176 N/A

South Africa Premier pipe 32 30-35 (0.064) 20

U.S. Sloan pipe N/A 8-20 (0.04) 15

Russia Mir pipe 7 >60 (300)2 >20

Australia Argyle1 crater 45 680 (1.36) 10

1lamproite host rock

From: Primary Diamond Deposits: What controls Their Size, Grade & Location by H. Helmstaedt in Giant Ore Deposits Proceedings; Queen’s University, Kingston, Ont.., May 11-13th, 1992.